[Joint House and Senate Hearing, 118 Congress]
[From the U.S. Government Publishing Office]



 


                                 ______



 
   FACTORIES AND FRAUD IN THE PRC: HOW HUMAN RIGHTS VIOLATIONS MAKE 
                       RELIABLE AUDITS IMPOSSIBLE





=======================================================================

                                HEARING

                               before the

              CONGRESSIONAL-EXECUTIVE COMMISSION ON CHINA

                    ONE HUNDRED EIGHTEENTH CONGRESS

                             SECOND SESSION

                               __________

                             APRIL 30, 2024

                               __________

 Printed for the use of the Congressional-Executive Commission on China
 
 
 
 [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] 

 
 
 
 


              Available at www.cecc.gov or www.govinfo.gov
              
              
                      ______

             U.S. GOVERNMENT PUBLISHING OFFICE 
 55-563                 WASHINGTON : 2024
    
              
              
              
              


              CONGRESSIONAL-EXECUTIVE COMMISSION ON CHINA

                    LEGISLATIVE BRANCH COMMISSIONERS

House

                                     Senate

CHRISTOPHER SMITH, New Jersey,       JEFF MERKLEY, Oregon, Co-chair
    Chair                            STEVE DAINES, Montana
JAMES P. McGOVERN, Massachusetts     MARCO RUBIO, Florida
BRIAN MAST, Florida                  TOM COTTON, Arkansas
JENNIFER WEXTON, Virginia            ANGUS KING, Maine
MICHELLE STEEL, California           TAMMY DUCKWORTH, Illinois
SUSAN WILD, Pennsylvania             DAN SULLIVAN, Alaska
ANDREA SALINAS, Oregon               LAPHONZA R. BUTLER, California
ZACHARY NUNN, Iowa                   SHERROD BROWN, Ohio
RYAN ZINKE, Montana

                     EXECUTIVE BRANCH COMMISSIONERS

               DANIEL K. KRITENBRINK, Department of State

                  MARISA LAGO, Department of Commerce

                   THEA MEI LEE, Department of Labor

                     UZRA ZEYA, Department of State

                      Piero Tozzi, Staff Director

                   Todd Stein, Deputy Staff Director

                                  (ii)


                            C O N T E N T S

                              ----------                              

                               Statements

Opening Statement of Hon. Chris Smith, a U.S. Representative from 
  New Jersey; Chair, Congressional-Executive Commission on China.     1
Statement of Hon. Jeff Merkley, a U.S. Senator from Oregon; Co-
  chair, 
  Congressional-Executive Commission on China....................     3
Statement of Hon. James P. McGovern, a U.S. Representative from 
  Massachusetts..................................................     4
Statement of Hon. Thea Lee, Deputy Undersecretary for 
  International Affairs, Department of Labor.....................     7
Statement of Scott Nova, Executive Director of the Worker Rights 
  Consortium.....................................................    16
Statement of Adrian Zenz, Senior Fellow and Director in China 
  Studies, Victims of Communism Memorial Foundation..............    19
Statement of Jim Wormington, Senior Researcher and Advocate on 
  Corporate Accountability, Human Rights Watch...................    21

                                APPENDIX
                          Prepared Statements

Lee, Hon. Thea...................................................    37
Nova, Scott......................................................    39
Zenz, Adrian.....................................................    47
Wormington, Jim..................................................    95

Smith, Hon. Chris................................................    99
Merkley, Hon. Jeff...............................................   100
McGovern, Hon. James P...........................................   101

                       Submissions for the Record

Statement of Alicia Hennig, business ethics researcher and 
  interim professor at Technical University Dresden, Germany.....   103

CECC Truth in Testimony Disclosure Form..........................   111
Witness Biographies..............................................   113

                                 (iii)


   FACTORIES AND FRAUD IN THE PRC: HOW HUMAN RIGHTS VIOLATIONS MAKE 
                       RELIABLE AUDITS IMPOSSIBLE

                              ----------                              


                        TUESDAY, APRIL 30, 2024

                            Congressional-Executive
                                       Commission on China,
                                                    Washington, DC.
    The hearing was held from 10:03 a.m. to 11:54 a.m., in Room 
2020, Rayburn House Office Building, Washington, DC, 
Representative Chris Smith, Chair, Congressional-Executive 
Commission on China, presiding.
    Also present: Senator Jeff Merkley, Co-chair, Thea Lee, 
Deputy Undersecretary for International Affairs, Department of 
Labor, and Representative McGovern.

   STATEMENT OF HON. CHRIS SMITH, A REPRESENTATIVE FROM NEW 
   JERSEY; CHAIR, CONGRESSIONAL-EXECUTIVE COMMISSION ON CHINA

    Chair Smith. The hearing will come to order, and good 
morning to all of you. I thank you for coming. Our hearing 
today will give a very good look at so-called social audits by 
companies whose supply chains originate in the People's 
Republic of China, that cover up the existence of forced labor 
in those supply chains.
    Back in the early 2000's, I read a book called IBM and the 
Holocaust: The Strategic Alliance Between Nazi Germany and 
America's Most Powerful Corporation. I recall how shocked I 
was--it was a very heavily footnoted book--how shocked I was at 
the time--it revealed an American corporation's complicity in 
aiding and abetting the Nazi regime, especially in tracking 
down Jews for the concentration camps. As a matter of fact, in 
the opening the writer talks about why the Gestapo always had 
such good lists of Jews. Well, they got them from IBM. They 
placed greed over concern for humanity and turned a willing 
blind eye to the implications of their work.
    Nor was IBM alone in this. Books had been written about the 
ties the whiteshoe law firm Sullivan & Cromwell had with the 
Nazis, for example. But I took some comfort in knowing that 
that was in the past. Surely, if there was evidence today of an 
evil regime's abuse of human rights--for example, the mass 
scale detention of despised ethnic and religious minorities in 
concentration camps, forcing them to toil as practical slaves 
to produce goods for export--surely American corporations would 
shudder and shun any complicity with that.
    Fast-forward to today, however, and that is precisely what 
we see, corporate complicity in the grossest of human rights 
violations. Our hearing revealed, for example, how Thermo--this 
was recently--Thermo Fisher Scientific, whose DNA markers have 
been used by police in Tibet and the Xinjiang Autonomous Region 
to compile databases of the DNA of millions of Tibetans and 
Uyghurs, has also been implicated in the forced harvesting of 
human organs. While Thermo Fisher Scientific may be the 
corporation whose behavior most closely mimics that of IBM 
before the beginning of the Second World War, our hearing today 
focuses on those manufacturers, suppliers, importers, and 
retailers whose supply chains in China are tainted by reliance 
upon forced labor to achieve the lowest prices, yet who seek to 
rely on social auditing companies to obscure and whitewash that 
reliance.
    We have known about corruption in the audit industry for a 
long time. Back in July 2021, I chaired a hearing--and as a 
matter of fact, Thea Lee was there representing the AFL-CIO on 
this very issue. We also heard at that hearing from Li Qiang, 
the founder of China Labor Watch, who testified as to the 
audits. He said, not only are the audits conducted in China 
ineffective, but he said that ``they are actually corrupt.'' He 
went on through many examples of how auditors for corporations, 
such as Apple, ignored unfavorable facts, such as with regard 
to inadequate worker safety processes. He gave several examples 
of the bribing of auditors so that auditors' reports would not 
require the investment of millions in improving conditions in 
factories and in plants.
    Today, using the fig leaf that audits provide, corporations 
seek to convince consumers, regulators, and perhaps even their 
own consciences that their supply chains are clean and 
compliant with U.S. law, including the provisions of the Uyghur 
Forced Labor Prevention Act and section 301 of the Trade Act, 
both of which prohibit the importation of goods made with 
forced labor. In a nutshell, however, as our witness Scott Nova 
will testify, ``social auditing in practice involves giving 
unqualified people inadequate time to pursue an unrealistic 
objective they have no incentive to achieve.''
    In a country such as the People's Republic of China, where 
independent labor unions do not exist, social controls prevent 
the free exchange of information, and recently passed national 
security laws make the disclosure of information that portrays 
China in a bad light a national security offense, social audits 
are particularly laughable But beyond aiding and abetting the 
human rights abuses that forced labor entails, companies whose 
supply chains are tainted also undercut American manufacturers 
at home, just as the textile industry whose ability to produce 
quality goods at an affordable price is undercut by importers 
who drive costs down by essentially using slave labor.
    Such labor may come from prisons in the Chinese laogai 
system, or from Uyghurs detained in so-called vocational 
skills, education, and training centers, or otherwise assigned 
by Poverty Alleviation Through Labor Transfer programs, to toil 
elsewhere in China. These corporations profit from the sweat of 
the brow of Uyghurs and other labor abuse victims in China, 
while beggaring their fellow Americans seeking to earn a decent 
wage in factories in the United States.
    I look forward to our distinguished witnesses today 
exposing the deception inherent in the use of social audits to 
whitewash corporate complicity in labor rights abuses. I would 
like to receive input on regulatory legislative gaps that they 
think we might plug. We also hope to hear their thoughts on--
particularly--the enforcement of existing legislation, 
including the UFLPA. Also, I'd like to suggest that our 
securities laws, in particular our 1934 Securities Exchange 
Act, and Rule 10b-5 promulgated under it, be put to greater 
use. That rule, as people are aware, prohibits any untrue 
statement of material fact, as well as any omission of material 
fact.
    As we go through annual reports and offering statements of 
publicly traded companies, we should ask whether they are 
disclosing to their shareholders and potential shareholders 
that their supply chains may indeed be compromised by forced 
labor in violation of U.S. law. Are they disclosing the 
potential loss of goodwill and harm to reputation when it is 
revealed that a company is benefiting from forced labor in 
their supply chains, to the detriment of their share price? To 
date, many corporations seem to be relying on these social 
audits to shield themselves from potential liability--social 
audits which today's hearing alone, with the good work done by 
several of our witnesses, shows to be works of near fiction 
when it comes to accurately portraying the State of labor in 
the People's Republic of China.
    Compliance departments, please take note--as well as the 
law and accounting firms that sign off on corporate 
disclosures: Following this hearing, I intend to write to the 
Securities and Exchange Commission, and I invite my 
commissioner colleagues to join me, to ask that they review 
disclosures by publicly traded companies to assess whether they 
contain any material misstatements or omissions with regard to 
forced labor in their supply chains. And if they do, to take 
enforcement action against them, levying fines.
    While the SEC proposed rules in May 2022 to clarify how 
investment funds can adhere to voluntary environmental, social, 
and governance standards--this is another fig leaf used by 
corporations to signal their virtue to consumers--these remain 
untethered to the objective criteria. That is only a tentative 
step which emphasizes the `E' in ESG, and is addressed to 
investment funds doing little to confront the issue of forced 
labor in supply chains. Further, if corporations are not 
policing themselves, and the SEC is slow in responding, then I 
hope the plaintiff's bar will help discipline these companies 
seeking to recover any loss in shareholder value that results 
from regulatory action and exposure of corporate audit-
washing.
    Finally, I would anticipate a future hearing wherein we 
invite auditing companies, such as the Loning Company, 
implicated in the Volkswagen scandal that we will hear about 
shortly. Whistleblowers in lowest-price retailers such as 
Walmart would also be asked to testify. I'd now like to turn to 
Co-chair Senator Merkley.

        STATEMENT OF HON. JEFF MERKLEY, A SENATOR FROM 
 OREGON; CO-CHAIR, CONGRESSIONAL-EXECUTIVE COMMISSION ON CHINA

    Co-chair Merkley. Thank you, Chairman Smith, for this 
hearing. For two decades, this Commission has reported on how 
the Chinese government's failure to provide basic human rights 
protection has had a detrimental effect on the lives of people 
living in China. Today we're focusing on the fact that this 
same lack of protection has a negative impact on American 
consumers. It's not a new story. We've known for years that 
substandard worker rights and lack of transparency in China has 
resulted in defective imports, such as lead-based toys used by 
American children.
    Our first witness, Deputy Undersecretary Thea Lee--we're so 
pleased to have her--serves as a member of this Commission and 
is a longtime expert and champion on this issue. Four years ago 
this Commission, based on research of another of our witnesses, 
Adrian Zenz, and others, published a report showing how 
products made with the forced labor of Uyghurs and other Turkic 
people in China were coming into the United States. The fruit 
of this research was the Uyghur Forced Labor Prevention Act, 
which banned imports of such goods and helped spark a much 
wider awareness of the need to rid our supply chains of forced 
labor.
    Key to the effort to know whether a supply chain is clean 
are the audits performed on the companies who are part of that 
chain. In 2021, the Biden administration issued the Xinjiang 
Supply Chain Business Advisory, which assessed that ``in and of 
themselves third-party audits are not a sufficient due 
diligence program and may not be a credible source of 
information for indicators of labor abuses in the region.'' 
With the enactment of our Uyghur Forced Labor Prevention Act, 
this warning has become a hard reality for companies importing 
from China.
    They now have to provide ``clear and convincing evidence'' 
that their products were not made with Uyghur forced labor. 
This is the core question for today's hearing. Are the audits 
that importers cite to meet the law's standard reliable? Do 
they have integrity? Are they genuine? Are reliable audits even 
possible in an environment where the Chinese government does 
not allow workers to speak freely, harasses auditors conducting 
due diligence in Xinjiang, and prevents auditors from obtaining 
information needed for their job? If a company cannot say with 
precise certainty to our government and to its shareholders, 
and most importantly to American consumers, that its products 
do not contain forced labor, then it needs to stop doing 
business there.
    Let's remember that our aim is not to punish companies 
simply for doing business in China. Our goal is to improve the 
human rights situation in China so that businesses can certify 
that their supply chain is free of forced labor and that their 
suppliers provide good working conditions and wages to their 
workers. And we ask these companies to partner with us in 
working toward that goal. We have an impressive set of 
witnesses and I look forward to hearing their analysis and 
their recommendations. Thank you, Mr. Chair.
    Chair Smith. I'm very pleased to welcome our Ranking 
Member, Representative McGovern. Thank you.

              STATEMENT OF HON. JAMES P. McGOVERN,
              A REPRESENTATIVE FROM MASSACHUSETTS

    Representative McGovern. Thank you very much. And I 
apologize in advance. I'm in between two hearings at once. But 
I want to wish everybody a good morning and I join my 
colleagues in welcoming our witnesses and the public to today's 
hearing on audits and certifications of supply chains in China.
    This hearing continues the work that the Congressional-
Executive Commission on China has done to shine a light on the 
use of forced labor by the People's Republic of China and to 
ensure that Congress is doing everything it can to bring an end 
to the practice. We are motivated by the terrible toll of 
forced labor on those subjected to it, especially the Uyghur 
people in Xinjiang, and by its impact on Americans. U.S. 
consumers should not have to worry about whether the products 
that they purchase are tainted by forced labor from China. U.S. 
workers and producers should not have to compete with companies 
that rely on forced labor.
    Congress took a major step in 2021 by passing the 
bipartisan Uyghur Forced Labor Prevention Act, legislation I 
was privileged to lead. The UFLPA creates a rebuttable 
presumption that all goods produced in the Xinjiang region of 
China are made with forced labor. This means the burden of 
proof lies with those who want to import goods into the United 
States to show that their supply chains are free of forced 
labor. The logic behind the law was that it would create 
incentives for stakeholders, including the PRC, to change their 
practices.
    The good news is that companies have responded by 
implementing their economic, social, and governance, or ESG, 
policies in contracting social compliance audits to certify 
that the supply chains for their products are free of forced 
labor. The problem, as we will hear today, is that even when 
these audits conform to industry-wide ESG standards, they may 
not be reliable in the Chinese context. This is both because 
the companies themselves pay for the audits and have a 
financial stake in clean findings, and because the PRC, instead 
of correcting course and ending the use of forced labor, has 
chosen to retaliate against those who do the audits or who 
cooperate with them.
    I want to be clear on this point. The PRC government could 
react to the worldwide concern that has been raised about its 
use of forced labor by taking the opportunity to end the 
practice, which by the way, would be consistent with its 
obligations under International Labor Organization conventions, 
all of which China has ratified. Instead, the PRC has taken 
steps like shutting down the offices of Shenzhen Verite, the 
Chinese affiliate of the social auditing firm Verite, which is 
based in my district, reportedly because the company was being 
a little too accurate about Uyghur forced labor and supply 
chains.
    Since 2021, the PRC has adopted laws, regulations, and 
practices that seem designed to limit the effectiveness of 
social audits in detecting the presence of forced labor in 
supply chains. One example is an anti-foreign sanctions law 
that has been used at least once to go after a U.S. due 
diligence firm for collecting Xinjiang-related sensitive 
information. A second is a broadened definition of espionage 
that came into play when PRC authorities detained staff at 
another due diligence firm that was reported to be conducting 
investigations on forced labor and supply chains linked to 
Xinjiang.
    Out of 29 firms listed by Social Accountability 
International as qualified to conduct certification inspections 
of manufacturers in China, five have announced they will no 
longer conduct social audits in Xinjiang because conditions 
simply do not allow them to do so. In light of this, our 
question today is, what more can Congress do to help to 
reinforce the incentives in the UFLPA? Are there steps we could 
take to strengthen the integrity of auditing mechanisms and 
make them more independent? Are there other ways to foster 
increased transparency of supply chains that do not backfire on 
those who try to do the right thing?
    So let me just close by emphasizing that we are not here to 
force companies to leave China. Our consistent goal is to help 
improve the human rights situation in China. But there is a 
possibility that the PRC's response so far to the global 
condemnation of its use of forced labor could lead companies to 
decide on their own that it is just too risky to do business in 
China, because the lack of human rights protection doesn't 
allow them to reliably comply with their own ESG policies. And 
with that, I thank the chairman for giving me the time, and I 
yield back.
    Chair Smith. Thank you. I'd now like to welcome our very 
distinguished witness, Deputy Undersecretary for International 
Affairs at the Department of Labor Thea Lee, who is no stranger 
to this Commission, and has been a leader for decades. I 
remember when you were at the AFL-CIO, and your testimony was 
brilliant, back in July 2012. You pointed out that section 301 
is useless if you don't use it, and pointed out that, at the 
time, the Bush administration twice rejected requests, which I 
and others had all supported, to use it. You know, one of the 
things that I am is nonpartisan when it comes to human rights. 
To speak out no matter who was in the White House. It doesn't 
matter. Well, the Bush administration dropped the ball big-
time. And you pointed it out in your testimony back in July 
2012. So thank you. We need to use all the tools. And as you 
said, if there's a tool but it's not used, what good is it?
    You've been advocating for worker rights both domestically 
and internationally for over 30 years, president of the 
Economic Policy Institute--a pro-worker Washington think tank--
from January 2018 to May 2021, and an international trade 
economist at EPI in the 1990's. From 1997 to 2017, Deputy 
Undersecretary Lee worked at the AFL-CIO, the voluntary 
federation of 56 national and international labor unions that 
represents 12.5 million working men and women. At the AFL-CIO 
she served as deputy chief of staff, policy director, and chief 
international economist.
    She served on the State Department Advisory Committee on 
International Economic Policy, the Export-Import Bank Advisory 
Committee, and on the board of directors of the National Bureau 
of Economic Research, the congressional Progressive Caucus 
Center, the Center for International Policy, and the Coalition 
on Human Needs, among others. She served on the U.S.-China 
Economic and Security Review Commission from 2018 to 2020. And, 
happily, in 2022, you were appointed to this Commission. And 
we're so glad to have you. Ms. Thea Lee, the floor is yours.

                  STATEMENT OF HON. THEA LEE,

        DEPUTY UNDERSECRETARY FOR INTERNATIONAL AFFAIRS,

                      DEPARTMENT OF LABOR

    Secretary Lee. Thank you so much, Chairman Smith, Co-chair 
Merkley, honorable members of the Commission, for inviting me 
here today and also for holding this very important hearing. I 
am honored and thrilled to be here.
    I head the International Labor Affairs Bureau at the 
Department of Labor. It plays a pivotal role in promoting and 
protecting workers' rights worldwide by advocating for 
international labor rights and protecting them, including the 
right to organize, bargain collectively, to have safe working 
conditions, and to be free of child labor, forced labor, and 
discrimination. ILAB contributes to creating a more equitable 
global labor landscape.
    The issue of factories and fraud in China is multifaceted, 
with significant implications for human and labor rights and 
the integrity of our global supply chains. Today I will address 
two related issues. First, the challenges and risks for 
businesses of using social compliance auditing as a definitive 
assessment of labor conditions in general. And second, the 
heightened risks given the ongoing human and labor rights 
violations in the Xinjiang Uyghur Autonomous Region of making 
reliable audits in the region impossible.
    Social auditing can be a useful tool to assess compliance 
at a particular point in time, but it cannot be the only 
mechanism for detecting labor rights violations and abuse. As 
we will hear more about today, audits are often announced in 
advance, giving managers time to prepare the facility. Managers 
can easily, and do, fake timesheets to skirt pay and overtime 
laws. And workers may be pressured to provide inaccurate 
information. To be effective, social auditing should be part of 
a comprehensive social compliance system that ensures that 
unions, democratic worker organizations, and other worker 
representatives, provide support and voice for workers to 
identify and raise concerns and collectively advocate for their 
rights and interests without fear of retaliation.
    ILAB's tool, Comply Chain, provides examples of best 
practices in this area. Worker voice and the ability to freely 
express concerns are essential. When authentic worker voice 
exists, workers can freely elect their union representatives, 
identify problems, negotiate agreements, and hold parties 
accountable. ILAB recently commissioned Penn State University 
to provide a report, ``Worker Voice: What It Is, What It Is 
Not, and Why It Matters.'' I recommend this report to all of 
you. It provides important insight on why legitimate authentic 
collective worker voice is critical to ensuring social 
compliance. And it provides six elements that we need to look 
for.
    It's clear that effective worker voice is impossible when 
workers are trapped in state-sponsored forced labor, where 
there are no independent democratic unions--as Chairman Smith 
mentioned--and where workers continue to face threats and 
reprisals. This is the situation we face in China. There are 
widespread restrictions and repression of freedom for human 
rights defenders. There is not just a lack of civil society 
presence--rather the entire civic space has been shut down. In 
Xinjiang in particular, ethnic minorities live in fear of the 
Chinese government. Any audit occurring in Xinjiang cannot be 
conducted without government oversight, making objective worker 
interviews free from reprisal an impossibility.
    As the U.S. Government highlighted in the Xinjiang Business 
Advisory published in 2021, updated in September 2023, as 
Senator Merkley mentioned, auditor interviews with workers 
cannot be relied upon, given pervasive surveillance, the threat 
of detainment, and evidence of workers' fear of sharing 
accurate information. And we have heard that auditors have been 
detained, harassed, threatened, or stopped at the airport. This 
is why dozens of major audit firms have not operated in 
Xinjiang for years. The fear of reprisal for both workers and 
auditors remains high. Social audits in China should not be 
seen as an authoritative source for companies reflecting on-
the-ground human rights conditions. The business community 
needs to be aware that any audits and, frankly, any business 
operations undertaken inside China, carry heightened labor and 
human rights risks.
    In conclusion, ensuring that workers have a substantive 
role and voice in social compliance is essential to make social 
compliance audits legitimate. Without workers' feedback, input, 
and support in resolving issues, labor exploitation risks in 
supply chains around the world will unfortunately persist. The 
Department of Labor is proud to serve on the Forced Labor 
Enforcement Task Force to support implementation and 
enforcement of the Uyghur Forced Labor Prevention Act. The 
UFLPA is a powerful tool to address egregious human and labor 
rights abuses and to ensure that U.S. workers and businesses 
have a level playing field. We will continue to leverage that 
tool to protect the integrity of lawful trade, the rights of 
workers, and continue to raise these issues and call for 
change.
    I thank you for your attention, and I look forward to the 
rest of today's hearing.
    Chair Smith. Thank you very much, Ms. Lee. And again, thank 
you for your decades of very effective advocacy for worker 
rights around the globe, including in China.
    Would you tell us what a good worker-driven social 
compliance program might look like? Can you tell us more about 
what ILAB means by worker voice? And while you're answering 
that--we all know, I think, in this room that there is no 
independent labor union in China. But I'm amazed sometimes when 
I hear, in talking to members of the business community, how 
they have a labor union--run by the Chinese Communist Party, of 
course.
    And, I mean, it's such a surface appeal argument that's 
used to suggest that somehow they're looking out for the rights 
of their own people. And we know for a fact, based on even the 
reporting we get out of China itself, that occupational hazards 
and deaths and maiming and loss of limb is very high--and it's 
grossly underreported. But there's no independent voice ever. 
It's always whatever the Chinese Communist Party wants us to 
see. So if you could maybe address those couple of issues.
    Secretary Lee. Thank you so much, Chairman.
    So what should a good worker-driven social compliance 
program look like? Of course, it would be based on 
international standards, the International Labor Organization 
Fundamental Principles and Rights at Work. But also, the key 
thing--what I mentioned earlier--is that workers and their 
organizations have to be directly involved in the creation, the 
negotiation, and the implementation of any social compliance 
program, because that's where the trust comes from. And, you 
know, I think one of the issues that we will hear about more 
today is whether workers feel comfortable coming forward and 
telling the truth. If you sit a worker down in the middle of a 
factory and say, are you working voluntarily, they're in the 
spotlight and they know that the auditor is going to leave. But 
the union doesn't leave. The union is there, 24 hours a day, 7 
days a week. It has the trust. It's also cheaper than a social 
auditing program.
    The third piece is that these provisions cannot be optional 
or voluntary, because we know that doesn't work. So the best 
practice is binding and enforceable agreements between brands 
and their suppliers, to which workers are also a party. So 
we've seen this work around the world, the Dindigul Agreement 
in India was an agreement between the Tamil Nadu Textile and 
Common Labour Union, a union of Dalit women workers in India, 
but also H&M, Eastman Exports, and civil society organizations, 
and the government got involved. That played a critical role in 
modifying the withhold release order against Natchi Apparel, a 
garment maker owned by Eastman Exports, that had a record of 
systemic physical and sexual violence in the workplace, an 
indicator of forced labor. So work organizations came to the 
table with the brands and were able to negotiate an agreement 
that made a significant change and actually lifted a trade 
measure.
    And finally, companies need to give space and capacity for 
suppliers to have the financial incentives for compliance. A 
lot of what this means is they need to pay a fair price to 
their suppliers. They have fractured their supply chains 
deliberately. And then if they pay too low a price and then 
hire an auditor to review the conditions, that's a little bit 
disingenuous because they're paying nothing and they're saying 
the workers should be treated well. And those two things don't 
go together. So that's, I think, one of the things that the 
companies need to do.
    I'm happy to talk just a little bit more about the Worker 
Voice Project that we asked Penn State to do for us. And there 
are six components that we have found. And I think these are 
really useful. This is all on our website. First is elect. That 
workers have to be able to elect leaders free from interference 
by employers or the government.
    The second is represent. Workers need to know their rights. 
They need to be engaged and mobilized. Elected leaders have to 
be accountable to their members and be responsible for 
consulting with them.
    Inclusiveness, so that worker organizations need to make 
sure--including the leadership--that they are representing the 
full breadth. So, for example, if a union says, Well, we're not 
representing the migrant workers or the people who speak a 
different language or who come from a different place, then 
they're not doing their job. So real worker voice includes 
inclusive leadership.
    Protect. Workers have to be protected from retaliation when 
they speak up, including protection from losing their jobs, or 
deportation. or facing abuse, including harassment, threats, 
violence, and coercion.
    Enable is the fifth one. Workers need to have the time and 
space to organize and engage in their union business and the 
training information to fulfill their rights.
    And empower. They have to be empowered by the labor laws, 
have the ability to pursue lawful action, including strikes, 
and have access to effective mechanisms to file grievances. So 
I think those six elements are very helpful.
    And just briefly, in terms of the question you asked about 
unions in China--I had some experience when I was working for 
the AFL-CIO. I was able to go visit a company. And it was a 
big, big name American company, or international company. It 
had 23,000 workers. And I was taken around. It was not an 
investigation. It was just a visit. Talking to the managers. 
And they had social auditors in there every week, Phillips Van 
Heusen, Ralph Lauren, very fancy brands. So they were very used 
to having people come in. And I asked, do the workers have a 
union? And there was a back and forth, the translation took 
about 10 minutes because they were trying to explain to the 
guy, like, what's that? And finally, he said, oh, you mean the 
Happy People Committee? And I was like, well, I guess. And he's 
like, Oh, yes, we have that. We have a Happy People Committee. 
And they go on shopping excursions and so on.
    But the fact that there were social auditors in this 
factory every week, every day, and none of them had asked that 
question, when all these companies had in their code of conduct 
freedom of association. So, you know, when a company operates 
in China, it knows it doesn't have--the workers do not have the 
ability to have an independent democratic organization, because 
it's not allowed. The law of the land--the empower piece of the 
worker voice--isn't there. So I think it's an essential piece. 
And really, any authoritarian, repressive government can't 
tolerate independent democratic unions, because they are a 
threat to authoritarianism. But that's why they're so 
important. And that's why I think it's right that we lift that 
up when we have this conversation about the failings of social 
audits. Thank you.
    Chair Smith. Just to ask you, are there any examples where 
workers have spoken candidly to the auditors, and have been 
retaliated against? And what response did the auditors take? 
Did they keep it all internal? Do they go public with it? Do 
they hear things that could make a difference if they would 
just speak up?
    Secretary Lee. That's an excellent question, Chairman. And 
I think probably it happens every day that workers say things, 
and the auditors can leave and the workers can lose their job. 
I don't think it's that easy for the auditors even to find out 
if there's been retaliation after they're not on the premises 
anymore. Do they go back and say, Whatever happened to Joe and 
Sally? Are they still working? Did they get a raise? Did they 
get put on the night shift, and so on? And I think that's one 
of the weaknesses of the social audit--that unlike a union, the 
social audit parachutes in, parachutes out, and doesn't have 
the ability to have that constant piece. So I think, 
unfortunately, sadly, it's something that happens all the time. 
And maybe it's something also where workers anticipate that 
there will be trouble, even if--they can't imagine that they 
can answer that question honestly. And so they do not, because 
they are looking to avoid trouble.
    Chair Smith. When workers are interviewed in small groups 
or even alone, how are they picked by these auditors? You know, 
if it's done randomly, you'd say, Okay, there's some validity 
to that. But then I could see a worker saying, Oh my God, I've 
got a target on my back as I walk out the door. As you said, 
there's surveillance everywhere. And nothing is between them 
and the auditor. It's between them and the Chinese Communist 
Party. I mean, how can we expect any kind of good outcome from 
this? I went back and reread some of the testimony from July 
2012. And it's like, we're--it's deja vu. We're right back 
where we were, in a very real way. Maybe it's even worse, 
because we kid ourselves that somehow we're making progress.
    I'm not talking about the work you're doing. It's great. 
But I'm talking in terms of what these corporations are doing. 
I mean, I'm for card-check here. I know how the management can 
intimidate even here, in the United States of America. But 
there are ways of coming back, forming and creating a union 
that then has their backs. There's nothing like that. And 
finally--and then I'll yield to my good friend the co-chair--
the ILO. Have they been aggressive in promoting free trade 
unions and worker rights? You know, the six points you've 
pointed out are the prescription for exactly what needs to be 
done. Does the ILO really engage? Or do they just put out a 
report here and there?
    Secretary Lee. A lot of excellent questions. In terms of 
how workers are chosen, I think too often sometimes handpicked 
workers are chosen by management, that the management knows 
will give the right answers. And in other cases, I'm not so 
familiar with the auditing processes to know exactly how 
they're done, but I think the best practice, I know from my 
days as a board member of the Worker Rights Consortium, is to 
do off-premise interviews, so that management's not breathing 
over your shoulder and looking at you and keeping track of 
everything. But of course, that's not possible in Xinjiang, as 
we've talked about. There's no possibility of saying, We're 
going to go to workers' homes, we're going to talk to workers 
after they get back from their fishing trips, and so on.
    In terms of the ILO--the International Labor Organization 
is an extraordinary organization. And it's tripartite, as you 
know. So it has representation of governments, workers, and 
employers. And sometimes that means it can move slowly in 
seeking consensus, but our experience is that the ILO has been 
a very valuable partner in a lot of parts of the world because 
it provides the credibility and the authority in terms of 
judging whether a country's laws are in compliance with ILO 
international standards or not, and also has been a valued 
partner to us in implementing technical assistance in many 
countries around the world.
    Chair Smith. Senator Merkley.
    Co-chair Merkley. Thank you, Mr. Chairman. And thank you, 
Deputy Secretary. We really appreciate your breadth of 
experience here. When we started to highlight the issue of 
slave labor in China, China could have responded by changing 
their practices, but they didn't respond that way. They 
responded with a series of laws that make it hard to collect 
information. And as I understand it, they passed in 2021 the 
PRC Data Security Law, they passed the Anti-Foreign Sanctions 
Law, they passed amendments to the Counterespionage Law 2 years 
later. And just to give a few examples, in December 2023, they 
put sanctions on a company for collecting--an American 
company--for collecting Xinjiang-related sensitive information. 
In March of 2023, under the counterespionage law, they detained 
employees of Mintz Capital who were investigating the use of 
forced labor.
    So essentially, based on everything that you have mentioned 
and the application of these additional laws, U.S. companies 
have this challenge in which, if they follow U.S. law to really 
get the information they need to make sure they don't have 
forced labor, then they're in violation of Chinese law. And if 
they don't do it, they're in violation of American law. And so 
it seems like under the current conditions described, this is a 
situation where the company can only really remedy by moving 
their supply chain out of Xinjiang. Is that where we ended up 
in all of this?
    Secretary Lee. Thank you, Senator Merkley, for that 
excellent question. And I think at the end of the day, that is 
the message from the business advisory, the U.S. business 
advisory in 2021 and 2023, that since you cannot do due 
diligence in Xinjiang or with Xinjiang workers, then you cannot 
responsibly operate there. And that would be my advice to 
companies, and I think that, of course, is the genesis of the 
Uyghur Forced Labor Prevention Act. It is impossible to do due 
diligence under those conditions, where it has been made 
essentially illegal by the Chinese government. If it is 
impossible to do that, then the only responsible thing to do is 
not operate in that atmosphere. And hopefully, I think as all 
the members of the Commission have said today, the goal is to 
bring about the change, is to convince the Chinese government 
to stop these practices.
    Co-chair Merkley. So let's take it to a second point, which 
is when essentially workers from Xinjiang are taken and 
transported to other factories, is that--say they're 
transported a significant distance outside of Xinjiang. In 
other parts of China outside of Xinjiang, is it possible to 
conduct audits in a more effective manner?
    Secretary Lee. I think the labor transfer program, as you 
say, has been growing. It is a significant problem. It is also 
covered by the Uyghur Forced Labor Prevention Act. And it is a 
means both to circumvent some of the protections in Xinjiang 
and also to depopulate Xinjiang. So I think that the labor 
transfer program presents significant challenges. I have not 
seen an effective way to address the challenges of monitoring 
the labor transfer program workers outside of Xinjiang.
    Co-chair Merkley. Is it possible to determine whether your 
subcontractor is using transferred labor?
    Secretary Lee. It ought to be possible, but it's very 
challenging. It's very difficult. And I know that on the Forced 
Labor Enforcement Task Force, we've faced a lot of trouble 
trying to get verifiable information about the labor transfer 
programs. There's information that's sometimes provided on 
Chinese websites, and then it disappears. And a lot of that 
information is not as fresh as we'd like, because there isn't 
the access. There is not the free access inside of China to 
workplaces, to workers, to be able to assess effectively who 
the workers are and where they've come from.
    Co-chair Merkley. You mentioned a tool, which is binding 
agreements with suppliers--between a company and suppliers. But 
how does that solve this problem, if we can't really audit 
what's really going on with that subcontractor?
    Secretary Lee. I think the enforceable brand agreements 
require that workers be able to have a voice and sit at the 
table. And that, I don't think, is possible at this moment in 
China. It's possible outside of China, and we've seen it--the 
Bangladesh Accord, the Pakistan Accord, the Dindigul Agreement. 
And there are other sorts of nascent examples of this. Also, 
the government can't be hostile to the enforceable brand 
agreement. In many cases, like the Dindigul Agreement, the 
government has been a partner with the businesses and with the 
union in putting something together. And so that would be an 
essential element.
    Co-chair Merkley. One effect of the forced labor agreement, 
or the bill that Marco Rubio and I really championed in the 
Senate, was to essentially encourage companies, because of 
these situations, to find alternative supply chains in other 
countries. We thought that perhaps as that starts to happen 
that would send a message to the Chinese government, and they 
might say we want to retain these companies, factories, in 
China. We might see a change in practice. Has there been any 
sign that as companies seek to get alternative production 
sites, China might be reconsidering the way it conducts 
business?
    Secretary Lee. I think it's early to say, but I think our 
experience with some of this is that a lot of those decisions 
are going to happen in a very closed way. Like, for example, 
with South Africa and apartheid. You know, during a lot of the 
period of agitation and activity and divestment from South 
Africa, the message from the outside was, the South African 
government doesn't care, you're just hurting the people you're 
trying to help. But at some point, it becomes untenable for the 
government to proceed.
    And my hope is that that is the direction we are going. 
We've seen that there has been production diverted outside of 
China. I think also with the European Union moving in the 
direction of putting in place their own forced labor import ban 
and their own mandatory due diligence, which just happened last 
week, that you're going to see increased pressure on China from 
other markets. And that's something that I think we've talked 
about before. Canada and Mexico have also instituted forced 
labor import bans. As other countries come on board, Australia 
and other countries are looking at this, I think it becomes--at 
some point it becomes untenable for the Chinese government to 
continue business as usual.
    Co-chair Merkley. I'm out of time now, but I'll mention two 
things. One, I'd like to follow up with further questions in 
written form about the Comply Chain Initiative from the 
International Labor Affairs Bureau and how that fits into this. 
Second of all, I was just up in Canada on the plastics treaty 
in Ottawa and was having conversations with Canadian officials 
about them joining us. Because right now, a lot of products 
that are turned down in the U.S. are shipped across the border 
into Canada, which is an escape valve that makes it much less 
effective. But I think this Uyghur Forced Labor Prevention Act 
is really a milestone in trying to take on horrific labor 
practices and terrible human rights violations by China. I hope 
we can keep pushing to make it more effective.
    Secretary Lee. I agree with you. And I thank you for the 
work that you did to implement the Uyghur Forced Labor 
Prevention Act. And just one quick thing--with Canada, ILAB and 
Canada and Mexico are carrying out trilateral training and 
technical expertise exchanges with respect to the Forced Labor 
Import Ban. We brought our customs, trade, and labor officials 
together from the three countries repeatedly for several 
workshops that I think have been very valuable. So we are 
definitely looking to strengthen the ability and the capacity 
of both Canada and Mexico to enforce their own laws.
    Co-chair Merkley. Great. Thank you.
    Secretary Lee. Thank you, sir.
    Chair Smith. Thank you, Senator.
    Just a final question. I chaired a couple of hearings on 
the growing use of forced labor to mine cobalt out of DR Congo. 
And in the past, I've been to Goma. I've been to places where 
this occurs. But not recently. But we know from our hearings 
that it's something like 25,000 to 40,000 children are being 
exploited in those mines, and about 200,000 adults. It's all 
going to China. China is running the mines. And you know, in my 
opinion, if somebody wants to buy an EV or--that's all up to 
them. But it should not be on the backs of little African 
children who are being hurt, and some killed, as they are 
mining this.
    Now, are you aware of any auditing that is occurring--I did 
ask Secretary Kerry this when he was still the czar for green 
initiatives. And he said there's an MOU that they're working 
up, or have worked up. And I've seen it. And to me, it's all 
aspirational. It doesn't have any teeth whatsoever with DR 
Congo--if you're going to mine it, process it there. Don't send 
it to China, where they perhaps again use forced labor or 
anything but free workers to process it.
    And I'm wondering if there's been any audits of that 
industry, the cobalt industry? Especially since we know without 
any doubt that there's exploitation in the extreme occurring as 
it's mined by China, and then it ends up in our showrooms, you 
know, in our car showrooms. Is it being audited by anyone?
    Secretary Lee. Thank you for that question, Mr. Chairman. 
And it's actually--ILAB has a project that is trying to trace 
the cobalt from the artisanal mines all the way through the 
production process. It's been a little bit challenging. We are 
working closely with the Ministry of Mines and the Ministry of 
Labor in the DRC. It's difficult. And as you say, for the exact 
reasons that you say, that both the commingling of the 
artisanal cobalt mines and the industrial mines--they're right 
next to each other sometimes. And they are by design sold to 
the Chinese processors and they go to China for processing. 
It's very difficult to separate that out.
    We have several projects going in the DRC on exactly this 
issue, because we consider it very urgent and very serious. So 
we are working both with children and communities and their 
families. We're working with the labor inspectorate. We are 
supporting them in getting more training and more resources. 
And in fact, the DRC labor ministry has moved to hire 2,000 
inspectors and administrative officials to improve their labor 
inspection system, which is a huge start. It's pretty amazing. 
But they have not had any capacity whatsoever to do the labor 
inspections in the main mines.
    So I think we're working very slowly in that direction. And 
I know there are also efforts to do more of the processing in 
the DRC, which they aspire to do--they would like to do. And 
that would solve one element of the problem. So I agree with 
you that this is a very serious issue. And we are doing 
everything in our power both to get more transparency and 
information, but also to build some capacity among the key 
players there.
    Chair Smith. I would respectfully ask if you could take a 
look at two bills that I've introduced. One would provide a 
rebuttable presumption with regard to the cobalt, and if it's a 
clean supply chain then, you know, have it come here. But I 
believe it is so egregiously tainted that there's no way that 
can be done. Second--so that's the first bill. That has not 
moved. The second bill has moved. The Ways and Means marked up 
my bill to create a strategy and do some other things vis-a-vis 
the cobalt industry in China and DR Congo. And that was marked 
up in the Ways and Means Committee last week.
    So I would ask if you could take a look at it, provide any 
insight you have. Hopefully, the support of the administration, 
because we know, even when things pass here they very often 
have a rough road in the Senate. And, you know, from my point 
of view, having had those hearings, having heard from witnesses 
about not just the kids that are exploited, but also the 
adults. They're not being paid. They're getting sick. They're 
often going into the mines without appropriate protection gear. 
And they're being worked by the Chinese Communist Party, who is 
overseeing all the mines. You know, and 70 percent of all the 
cobalt is coming from there. So it's very, very serious. And I 
think we've got to really get ahead of this one.
    Finally, I'll just say--please take a look at those. Scott 
Nova, executive director of the Worker Rights Consortium, who 
will be speaking, said: Social auditing in practice involves 
giving unqualified people inadequate time to pursue an 
unrealistic objective that they have no incentive to achieve. 
What a paragraph, or what a sentence! Do you agree with that?
    Secretary Lee. Yes.
    Chair Smith. Thank you. I really appreciate your testimony. 
And I look forward to hearing from you on the other bills. 
Thank you.
    Secretary Lee. Thank you so much, Mr. Chairman.
    Chair Smith. I'd now like to welcome our second panel. And 
thank you, Undersecretary Lee.
    Beginning with Scott Nova, who is executive director of the 
Worker Rights Consortium, an independent labor rights monitor 
organization that has conducted investigations of working 
conditions in factories around the globe, including in China, 
Vietnam, Myanmar, and other countries where severe restrictions 
on civil society pose special obstacles to labor rights 
inquiry. Mr. Nova is a leading expert on the aspects of labor 
rights investigations and on the practices and performance of 
corporate social auditors. He has written and spoken widely on 
the intersection of international commerce and worker rights. 
I'm really happy to have him here, as well as our other 
witnesses.
    Adrian Zenz--Dr. Zenz is the Director of China Studies at 
the Victims of Communism Memorial Foundation here in 
Washington, D.C. His research focuses on China's ethnic policy, 
Beijing's campaign of mass internment, securitization and 
forced labor in Xinjiang, and public recruitment and coercive 
poverty alleviation in Tibet and Xinjiang, and China's domestic 
security budgets. Dr. Zenz is the author of Tibetanness Under 
Threat. He has played a leading role in the analysis of leaked 
Chinese government documents, including the China Cables, the 
Karakax List, and the Xinjiang Papers, and the Xinjiang police 
files.
    Then we will hear from Jim Wormington, who is senior 
researcher and advocate of the economic justice and rights 
division at Human Rights Watch, where he works on extractive 
industry supply chains and other issues related to corporate 
accountability. He was previously a researcher in Human Rights 
Watch's African division covering human rights issues in West 
Africa. He is an English-trained barrister, a member of the QEB 
Hollis Whiteman Chambers, and was educated at Cambridge and New 
York University of Law. He recently coauthored the report, 
``Asleep at the Wheel: Car Companies' Complicity in Forced 
Labor in China.''
    I'd now like to turn the floor to Scott Nova.

                    STATEMENT OF SCOTT NOVA,

                     EXECUTIVE DIRECTOR OF

                  THE WORKER RIGHTS CONSORTIUM

    Mr. Nova. In assessing the validity of labor auditing 
schemes in China, it is necessary to bear in mind the checkered 
history of such schemes globally. So-called social auditing has 
public relations value to corporations keen on convincing us 
they're operating their supply chains responsibly but has often 
been of little value to workers.
    The examples of social auditing failures are voluminous and 
tragic. The worst factory disaster in human history happened in 
Bangladesh in 2013 when a building collapsed and killed 1,100 
garment workers. The building had been repeatedly inspected by 
social auditors working for Western brands. So had the dozen 
other garment factories in the country, where workers died en 
masse in fires and structural failures over a period of years 
due to egregious safety deficiencies. These factories were 
death traps before they were audited. They were death traps 
after.
    Examples of the failure of social auditing can be found in 
every industry and in any country. Among the most notable is 
the long history of auditing failures at Foxconn, Apple's 
primary supplier in China. Among the grim consequences were 
worker fatalities from easily preventable explosions, tens of 
millions of dollars in stolen wages, and inhumane conditions 
that led to a rash of worker suicides. These failures are the 
product of flaws inherent in auditing systems.
    For corporations to claim that their auditing schemes 
provide a meaningful umbrella of protection, these schemes must 
be comprehensive with regular inspection of thousands of 
production facilities across the supply chain. The only way to 
conduct thousands of inspections annually at a cost considered 
affordable by corporations seeking to produce as cheaply as 
possible is to assess hundreds of compliance standards, even at 
the most massive facilities, in one to 2 days. Such inspections 
are superficial by necessity.
    So what are the skills of the auditors? In the U.S. we have 
numerous different regulatory agencies responsible for the 
enforcement of labor laws within each or multiple categories of 
specialists. This is typical of regulatory systems because of 
the extensive expertise required to handle each specific issue. 
Social auditing systems ask each auditor to handle every 
applicable standard. Each is a jack of all trades, a master of 
none, carrying out specialized tasks without specialized 
training.
    How did thousands of audits in Bangladesh miss the hazards 
that threatened workers' lives? Because the auditors had no 
training in identifying such hazards. This didn't stop the 
firms they worked for from issuing the factories a passing 
grade. Even more problematic are the conflicts of interest 
inherent in the system. U.S. corporations don't produce in 
China or Guatemala to uphold labor rights. They do so because 
it's cheap. Since it costs more to produce under good 
conditions than bad, promises corporations make to improve 
conditions through auditing conflict directly with their 
financial imperatives.
    Corporations don't audit to find out whether they need to 
change their supply chains, for example, leaving a country 
where the labor environment guarantees abuses. They audit 
because they want to preserve lucrative sourcing strategies and 
need to convince policymakers and customers that those 
strategies are somehow compatible with humane treatment of 
workers. That goal is not served if auditors consistently 
reveal embarrassing realities. Corporate imperatives shape 
auditing schemes, not vice versa.
    The corporations employ the auditors directly or pay 
contract auditing firms. Unlike financial auditing, where there 
are rules and regulations designed to preserve the ability of 
auditors to render independent judgment of a client that is 
paying them, social auditing is notorious for the lack of any 
regulatory oversight. Auditors have strong incentive to avoid 
inconvenient conclusions, while facing no consequences for 
underreporting violations.
    As the chairman has noted, social auditing in practice 
involves giving unqualified people inadequate time to pursue an 
unrealistic objective they have no incentive to achieve. Social 
auditing is poorly suited to uncovering abuse, even in 
environments conducive to labor rights investigation. An 
unconducive environment like the one in China makes this 
mismatch extreme. This raises a vital question: How can U.S. 
corporations importing from China carry out the due diligence 
with respect to forced labor they now have a legal obligation 
to perform? The answer, with respect to auditing within the 
XUAR, is simple. They cannot.
    As this Commission reported in 2022, firms cannot rely on 
factory audits to ensure that their supply chains are free of 
forced labor. Meaningful audits remain a practical 
impossibility in the region, which is why no sourcing can be 
allowed. Many auditors have stopped auditing in the region, 
some in response to calls from human rights groups, others 
because the UFLPA has shrunk the market for auditing. Brands 
that have ceased sourcing from the region have no reason to 
hire auditors to conduct inspections.
    However, as UFLPA enforcement accelerates and pressure 
mounts in industries like solar and auto that have been heavily 
dependent on the region, there is a risk of a resurgence of 
efforts to use social auditing within the XUAR, as legal and 
political cover for continued sourcing. Indeed, some auditing 
firms continue to operate in the region. One is Elevate, one of 
the most prominent auditing firms in the world. There was also 
the recent Volkswagen audit of its joint venture facility in 
the XUAR, an audit so lacking in credibility that most of the 
staff of the firm that performed it publicly disavowed it.
    While the impossibility of conducting credible labor 
inspections within the XUAR is well established, compliance 
with the UFLPA's ban on imports from factories outside the XUAR 
that utilize transferred Uyghur workers remains essential to 
compliance with the UFLPA. Since labor transferred from the 
region has been utilized by factories in many different parts 
of China, the risk is nationwide. This raises two questions: 
Are corporations inspecting suppliers to ensure there's no 
transferred labor? And what methods are their auditors using to 
overcome the massive obstacles to such inspections?
    There's little public information available. Most 
corporations are silent on how they are complying in this area. 
And no auditing firm has provided any transparency as to 
methods. We know from private discussions that some auditing 
firms are claiming they can detect transferred labor, but it is 
unclear how many corporations are using such services and what 
methodologies are employed. In our opinion, given the powerful 
incentive any supplier using transferred labor has to hide the 
practice, reliably detecting the presence of transferred Uyghur 
labor requires methods beyond those normally employed by social 
auditors--including gathering information from the facility's 
workers offsite.
    Interviewing workers onsite is useless in this context. It 
is inconceivable that a Han Chinese worker is going to tell an 
auditor in a conversation arranged by factory managers 
occurring inside the workplace that Uyghur workers are present 
in the facility and that management is hiding them. However, 
based on limited information available, we're unaware of any 
auditing firms that are using such alternative methods.
    There's another obstacle to effective audits. The Chinese 
government is actively seeking to undermine the ability of 
auditors to expose abuse. Indeed, they are even targeting 
auditing firms and their Chinese personnel involved in efforts 
to verify compliance. The Outlaw Ocean Project provides a 
window into the effectiveness of auditing under these 
conditions. The project uncovered multiple instances of audits 
failing to identify forced labor in seafood processing plants 
in China, supplying U.S. firms. All had been certified by 
prominent bodies that use social audits to verify compliance. 
In one case, the investigation found Uyghurs working at a plant 
the same day an audit gave the facility a passing grade.
    By way of excusing these failures, auditing firms told 
investigators, and I quote, ``forced labor is notoriously 
difficult to identify.'' Indeed. Corporations face a severe 
UFLPA compliance dilemma, even if they've stopped sourcing from 
the XUAR. Full compliance requires viable methods to ensure 
there's no transferred Uyghur labor at suppliers outside the 
XUAR. The U.S. Government should be asking corporations 
importing goods from China to demonstrate that they have such 
methods in place. The leaders of any corporation that can't do 
so must then explain how they know, with respect to any given 
import on a given day, that they are not breaking the law. 
Thank you.
    Chair Smith. Thank you very much, Mr. Nova.
    Dr. Zenz.

                   STATEMENT OF ADRIAN ZENZ,

          SENIOR FELLOW AND DIRECTOR IN CHINA STUDIES,

            VICTIMS OF COMMUNISM MEMORIAL FOUNDATION

    Mr. Zenz. Dear Chairman, dear Co-chair, thank you for 
inviting me to testify today. The so-called Xinjiang Uyghur 
Autonomous Region operates the world's largest current system 
of forced labor--state-imposed forced labor, with over 2 
million Uyghurs and ethnic group members at risk as we speak. 
In contrast to most forms of forced labor, state-imposed forced 
labor operates through a pervasive police-state environment.
    It is therefore often more readily assessed as a risk than 
a specific instance because it creates an environment where 
victims cannot speak freely. As a result, due diligence efforts 
based on social or labor audits are not feasible, either in 
Xinjiang or in Chinese provinces that receive transferred 
ethnic workers. The Chinese government has been hiding related 
statistics of transfers outside of Xinjiang. But, according to 
my research, the number of transferred Uyghurs was set to 
increase last year by 38 percent.
    Affected companies and supply chains must be considered at 
risk of being tainted with forced labor. The only ethical 
choice is divestment. Many auditing companies are either 
unaware or pretend to not realize that the very nature of 
state-imposed forced labor and labor transfers means that 
forced labor cannot be reliably assessed at workplaces. You 
would have to conduct an audit of the entire social 
environment. While there have been efforts by companies to 
divest from supply chains linked to Uyghur forced labor, these 
efforts remain insufficient, supply chain transparency remains 
limited, and this has been severely aggravated by obfuscation 
efforts by the Chinese state, which is now increasingly 
criminalizing the collection of data essential to performing 
due diligence.
    Germany's chemical company BASF operates two joint ventures 
in Xinjiang. Its joint venture partner, Markor, has 
participated in government work teams that entered and spied on 
ethnic households during the peak of the mass internments. 
Incriminating reports on Markor's website that were identified 
and passed to media last year describe staff enforcing 
assimilatory ethnic unity activities and entering targeted 
households at night. However, as recently as November 2023, 
BASF stated that it was in concrete discussions with an 
auditing firm to renew its Xinjiang joint venture audit in 
2024. And as we know, of course, these audits cannot uncover 
these kinds of activities.
    In December 2023, Volkswagen published an informal one-page 
PDF billed as an audit of its joint venture factory in 
Xinjiang. Immediately after the report was issued the staff of 
the auditing firm, Germany's Loning, disavowed any connection 
to the audit. Between then and now, nearly one-third of the 
entire staff at Loning have in fact resigned, presumably in 
protest. The audit's methodology shed significant doubts on the 
findings' validity. Volkswagen had disclosed that the actual 
audit was conducted by two Chinese lawyers, who were 
accompanied onsite by merely one Loning staff member.
    Markus Loning's comments to the media suggest that his 
quotes published by Volkswagen were, in fact, misleading. In 
them, Loning claimed that ``we conducted 40 interviews.'' 
However, later he conceded that the audit was mainly based on a 
review of documentation rather than interviews, given--
according to his own words--that interviews would endanger the 
staff. Loning's statements acknowledged that this so-called 
audit consisted of little more than a visual onsite inspection 
combined with a review of staff work contracts. Such a review 
cannot identify state-imposed coercion.
    Experts have noted that a poorly designed audit is, at 
best, meaningless and, at worst, excuses harm that the audit 
claims to mitigate. Volkswagen's strategy appears to exploit 
the fact that no visible signs of forced labor were ever likely 
to emerge at its facility. By creating the appearance of a 
genuine audit, while measuring factors irrelevant for assessing 
state coercion, the Volkswagen-Loning effort is a paradigmatic 
and deliberate example of audit-washing. In addition, further 
research I conducted shows that the SAIC-Volkswagen test track 
in Turpan, a Uyghur region, was built by a Chinese state-owned 
enterprise using transferred Uyghur laborers, according to 
their own statements.
    Aside from exposure to coerced labor transfers, internal 
government documents show that Volkswagen could also be 
implicated in Xinjiang's camp-linked forced labor system. 
Following the Loning audit, index provider MSCI removed 
Volkswagen's ESG red flag rating, indicating that Volkswagen 
can be considered an ethical investment, despite its continued 
presence in Xinjiang. The most recent evidence implicating 
Volkswagen's test track and forced labor has so far been 
completely ignored by MSCI. MSCI is rewarding and enabling 
Volkswagen's audit-washing and complicity in the region. This 
issue warrants further investigation into both the Loning audit 
and into MSCI's methodology.
    Just in February this year, the International Labor 
Organization published an update of its guidance, adding a 
section on state-
imposed forced labor and responding to feedback and criticism 
given by others and myself, in my extensive engagement for the 
ILO last year. And you will find an entire section of that 
reviewing the implications of these updated recommendations of 
the ILO in my written testimony. This should be used to 
investigate and to measure the issues created by audit-washing 
and by questionable methodologies, including by index 
providers.
    Recommendations. I recommend that the U.S. Government and/
or Congress publish a detailed report about the ways in which 
the Chinese state impairs the implementation of meaningful 
audits and intimidates auditors and companies, preventing due 
diligence. Congress should hold hearings to investigate the 
experiences of audit providers in China and whether or not they 
would be willing to conduct audits in Xinjiang. Scott Nova and 
I sent a letter to multiple auditors early in 2020, and we only 
got affirmative responses from a limited number of them. This 
is an unacceptable situation.
    Congress should also hold hearings involving Volkswagen, to 
investigate the circumstances of the Loning audit, and whether 
the public has, in fact, been misled by it. Congress should 
also hold a hearing questioning index provider MSCI, and 
potentially other index providers, over its methodology in 
adding and then removing its red flag rating for Volkswagen 
without clear and appropriate evidence--and also what MSCI will 
do about the latest allegations directly implicating the 
Volkswagen test track in Uyghur labor transfers. CBP should use 
the Uyghur Forced Labor Prevention Act to require companies 
whose supply chains involve an elevated risk of connection to 
products made in whole or in part with Uyghur forced labor, to 
disclose their supply chains at the raw material level. And if 
they are unwilling or unable to do so, then Congress should 
enact related legislation. Thank you.
    Chair Smith. Thank you very much for your testimony and 
expertise, and also for those very good recommendations. And we 
will follow up. Thank you.
    Mr. Wormington.

STATEMENT OF JIM WORMINGTON, SENIOR RESEARCHER AND ADVOCATE ON 
          CORPORATE ACCOUNTABILITY, HUMAN RIGHTS WATCH

    Mr. Wormington. Thank you, Chairman Smith, members of the 
Commission, for the invitation to be here today.
    The essential context for this hearing is the long-standing 
connection between major global industries and the Chinese 
government's human rights violations, including state-imposed 
forced labor programs targeting Uyghurs and other Turkic 
groups. The car industry provides a compelling example of the 
links between global supply chains and Uyghur forced labor. My 
organization, Human Rights Watch, in February 2024, published a 
report describing how approximately 10 percent of global 
aluminum, a vital material for car manufacturing and other 
industries, is produced in the Xinjiang Uyghur Autonomous 
Region, which I'll refer to as the Uyghur region.
    Our research showed that aluminum producers, and the coal 
mines and coal plants that supply them, have participated in 
coercive labor transfers, a form of state-imposed forced labor. 
Aluminum from the Uyghur region is shipped out of Xinjiang, 
melted down, and used to make aluminum products for car 
manufacturers and other industries. The hearing today is 
important because companies and their suppliers in the car 
industry and other sectors continue, as my colleagues have 
said, to use social audits to investigate labor conditions at 
factories in the Uyghur region.
    Audits are not a credible mechanism for investigating 
Uyghur forced labor. The Chinese government's use of 
extrajudicial detention, torture, and enforced disappearances 
in Xinjiang, as well as massive intrusive surveillance, pose 
grave risks to workers. This makes it impossible for auditors 
to safely and credibly investigate forced labor. Volkswagen's 
2023 audit, as Dr. Zenz has explained, exemplifies the problems 
and pitfalls of auditing in the Uyghur region. I won't repeat 
what Dr. Zenz said about the audits, but I think it's extremely 
instructive that Markus Loning, whose firm oversaw the audit, 
said afterwards that interviews with workers in the Uyghur 
region could be ``dangerous,'' and that ``even if workers would 
be aware of something, they cannot say that in an 
interview,''--this from the person who oversees the firm that 
oversaw the audit.
    Following the release of the Volkswagen audit report, Human 
Rights Watch and 61 Uyghur human rights and labor organizations 
issued a statement criticizing the Volkswagen audits and 
calling on consultancies and auditors to immediately cease 
providing services in the Uyghur region. But stopping the use 
of audits at factories in the Uyghur region is not enough to 
address the role of audits in enabling connections between 
global supply chains and Uyghur forced labor. And I think this 
is, in some sense, the most important part of what I'll say 
today, which is that stopping audits in the Uyghur region is 
not enough to stop the connection between audits and the 
washing of global supply chains.
    That's for two reasons. The first reason, as Scott Nova has 
referenced, is that labor transfers are continuing outside of 
the Uyghur region, and that the question of how you can audit 
sites and factories outside of Xinjiang is a question and 
challenge that all companies operating in China have to 
confront. And the second reason is that in industries, 
especially, for example, in the car industry, companies also 
use what's called supply chain due diligence audits, not to 
investigate conditions at a particular factory, but to verify 
whether their suppliers have processes in place to avoid 
sourcing products or materials linked to human rights abuses. 
So those audits don't look at particular factories. They look 
at the sourcing policies of direct and indirect suppliers.
    These audits, as others have said, are still constrained by 
the threat of Chinese government harassment and reprisals 
against auditors across China, where they are investigating 
links to Uyghur forced labor. Our own research on supply chain 
due diligence audits in the aluminum sector revealed evidence 
that auditors assessing a car industry supplier, with evidence 
of links to the Uyghur region, avoided reference to Uyghur 
forced labor in the audit report due to ``the political 
sensitivity of the issue.'' This form of self-censorship plays 
squarely into the Chinese government's efforts to quash 
discussion of its abuses in the Uyghur region, even for an 
audit that was happening outside Xinjiang.
    The impossibility of conducting credible audits in the 
Uyghur region, and the growing concerns about the obstacles to 
effective auditing in the rest of China, mean that companies 
should not rely on audits either as evidence of the absence of 
forced labor at specific factories or as proof that a supplier 
in China is sourcing responsibly and does not have forced labor 
in its supply chain. Companies should instead themselves map 
their supply chain and responsibly disengage from joint 
ventures, subsidiaries, or suppliers who continue to operate or 
source materials or products from the Uyghur region.
    I would echo what others have said, and as Chairman Smith 
has said--about the importance of holding hearings to bring 
executives from audit firms to Congress to testify about both 
the obstacles of auditing in China and the efforts that those 
firms are taking to avoid being complicit in human rights 
abuses in China and elsewhere. Congress should also hold 
hearings with key industries, including the car industry, 
requesting that they testify about the risk of Uyghur forced 
labor in their supply chains, and about their use of audits at 
their joint ventures and their suppliers, potentially building 
on the Senate Finance Committee's ongoing investigation into 
the car industry and its links to Uyghur forced labor.
    Finally, Human Rights Watch thinks and has said that the 
Uyghur Forced Labor Prevention Act is an extremely important 
and effective piece of legislation at stopping imports of 
products from the Uyghur region entering the U.S. But for 
products like aluminum, where the supply chain remains 
extremely opaque and extremely complex, supply chain 
transparency is the key obstacle to effective enforcement and 
prohibition of imports linked to forced labor. Congress should 
consider enacting legislation for high-risk commodities--like 
cotton, polysilicon, and aluminum--that requires companies 
importing those commodities to disclose their supply chains to 
prove that they are, in fact, not sourcing from the Uyghur 
region. Thank you, Chairman Smith.
    Chair Smith. Thank you so very much, Mr. Wormington.
    Maybe you could all give us some insight as to what 
consequences you think there ought to be for these auditing 
companies. We will invite them. We look forward to your 
recommendations as to who. I'm wondering--if an auditor--
obviously, they must have some true sensibilities toward the 
people they're talking to. And when they come back again and 
find out that Joe or Jim or whoever all of a sudden has 
disappeared, or they're in the laogai or they're in a 
concentration camp for having spoken to them, if they did, is 
there any anecdotal information on that, or is it all just 
completely closed?
    And let me just ask you this. You know, this whole auditors 
issue reminds me of the charade that we saw going on in the 
1990's. When, starting with George Herbert Walker Bush, then 
followed very aggressively by Bill Clinton, we had an MOU with 
China on gulag labor. And I went over to China several times. I 
actually got into Beijing Prison No. 1, where Tiananmen Square 
activists, 40 of them, were making shoes for export, and socks. 
And Frank Wolf and I went there. And, you know, we took samples 
out. We got an import ban on that one, but only because we had 
the information and it was actionable.
    But every time we raised it with the administration, they 
would say, Oh, we have an MOU. And they would wave it in front 
of us. And I'd say, But it's not worth the paper it's printed 
on, because if we suspect something and we have no access to 
the gulag or laogai that's producing this, we tell the Chinese 
government, they investigate, and 60 days later they give us an 
account. So I met with our customs people on one of my trips to 
our embassy. And I said, Well, how many cases do you actually 
get? And they said--none. Because, you know, who's going to do 
it? And even if they had one, they would have to give it to the 
Chinese police to do a whitewash, which they would do.
    But at hearing after hearing we would have administration 
witnesses telling us how we have an MOU. And now I think--fast 
forward to today--we have these audits, which thankfully you 
are helping to expose for the fraud that they are. And we've 
got to come up with something. But what consequences should we 
be imposing, if any, on the auditing companies? Obviously, most 
of them are not U.S., if any. And then the companies--like at 
our hearing; Thea will remember this. You know, we focus a lot 
on Apple, and the others, but Apple in particular. And it was--
it's, like, nothing has changed.
    And I'm just wondering, you know, 14 years later, after 
that hearing, we're still dealing with this issue. And the 
corporations are hiding behind this, like, See, we've got this 
audit, everything looks fine. What companies, finally, would 
you say are the worst violators of using this? You mentioned 
Volkswagen. And I think that's a very insightful case. We'll 
invite them. Maybe they'll come and testify. You know, it would 
be great to hear how they square this with good corporate 
citizenship. But any--if any of you would like to take a shot 
at this? Yes.
    Mr. Nova. I mean, in terms of the issue of retaliation 
against workers who've testified to auditors, it's a widespread 
problem in the industry. And there's very little follow-up in 
general from corporate auditing firms. I don't know of any 
firms that have a proactive mechanism for follow-up, which 
means in order for them to even find out that something has 
occurred, either the factory would have to disclose it, which 
is obviously unlikely, or workers would have to trust the 
auditor enough to actually reach out to them and complain, 
based on a belief that they'd likely get some recompense as a 
result.
    And in general, auditors don't have that trust because from 
a worker's perspective, an auditor is some group of people who 
come into the factory under management's auspices, walk around 
the factory with management, and ask a bunch of questions that 
might as well have come from management. You know, we see this 
problem frequently in our own investigations. And in addition 
to the problem of after-the-fact retaliation, there's the 
problem of before-the-fact coaching, of managers telling 
workers--threatening them with consequences if they testify or, 
most commonly, simply telling them: If you tell auditors 
anything negative about our facility, we'll have to close and 
you'll lose your job. So that's a huge obstacle.
    On the question of consequences for auditors, this is a 
really important issue. One obvious possibility is to view the 
role auditors play in helping corporations hide the reality of 
their supply chains from relevant audiences in the U.S.--to 
view it as an act of fraud, and to think about how that could 
be punished appropriately. Under the Trafficking Victims 
Protection Act, the executives of corporations who profit from 
forced labor in their supply chains that they either know about 
or should know about, can be criminally prosecuted. It's never 
happened, but the power exists to do so. The power also exists 
to prosecute the auditors under the same law. And until we see 
these kinds of consequences, it's very unlikely that we'll see 
a major change in the practices and ethics of auditing firms 
and the corporations that use them.
    Chair Smith. Mr. Wormington.
    Mr. Wormington. Thank you, Chairman Smith.
    I mean, just to echo a point that Scott made, I think that 
it is essential to think about what the legal strategies are 
that can hold audit firms accountable. There is an analogy in 
the mining sector, which I do a lot of work on, where you have 
certification systems that purport to certify a particular 
commodity--it could be gold, it could be cobalt, for example--
as being responsibly produced. And in essence, what that 
certification is saying to the consumer is you can trust that 
the origin of this material--you can trust the origin of this 
commodity. And so there are ongoing examples of litigation, 
including in London, where organizations are trying to hold 
those certification agencies accountable under consumer 
misrepresentation law, because they are misrepresenting to the 
consumer that something was responsibly sourced, when it 
wasn't.
    But it's certainly true, I think, that the more legislation 
we can have to facilitate those kinds of actions, the better. 
Just quickly, on the other companies--the brands, the Apples, 
the car companies that are implicated, I want to be really 
clear that our report did include Volkswagen, but the issue of 
sourcing of materials--not having a factory in Xinjiang, which 
is the Volkswagen case--but the sourcing of raw materials is a 
problem that applies across the automotive industry. It's not a 
Volkswagen-specific problem. And if you are having car 
companies come to testify about their supply chain links to 
forced labor, you should absolutely be requiring the Teslas, 
the Fords, the Mercedes, the General Motors, to come and 
testify about that issue.
    The other point I just want to quickly make on that front 
is that we think a lot about imports, because of the Uyghur 
Forced Labor Prevention Act. And, of course, we want to make 
sure we protect consumers globally from imports that are linked 
to forced labor. But many of these companies also have huge 
joint venture operations inside of China--for example, 
including General Motors, including Volkswagen--where in some 
cases, the majority of their cars are actually being sold 
inside of China and produced inside of China. But those are 
still U.S. or European companies. And so the question should be 
asked as to what the standards are that these companies are 
applying for sourcing inside China, for your operations and 
your joint ventures in China, just as much as you are for the 
cars that are being exported to the U.S. I think that would be 
a critical question to ask carmakers also if they come to 
testify.
    Chair Smith. Thank you. Dr. Zenz.
    Mr. Zenz. Yes. I would very much agree with the assessment 
that these sorts of pseudo-audits constitute a form of fraud 
and should be punished as such. And I defer to experts, such as 
Scott Nova, who are more familiar with the existing legal 
frameworks and how they should be strengthened.
    I think there's also a real communication problem. So when 
I, for example, gave the recommendation that the U.S. 
Government or Congress should publish a detailed report about 
Chinese government impairment and obfuscation of auditing--of 
meaningful auditing, I think there needs to be a lot more 
detailed communication; for example, State Department guidance 
on Xinjiang Business Advisories or the CBP's guidance on the 
UFLPA--that with this kind of form of forced labor you cannot 
go and audit a workplace, and then inspect a workplace and say, 
Okay, well, there wasn't any obvious visual sign of coercion, 
so we can kind of give this a passing grade. We should really 
educate and also put it out as a warning sign to specifically 
say that these kinds of procedures and standards to perform an 
audit are unacceptable overall.
    And, as we know with the UFLPA, unfortunately, there's no 
criminal punishment component. If you violate the UFLPA, your 
shipment gets detained. And you can go and pass it on to the 
Canadians, or whoever else in the world. And that's not much of 
a punishment if you do that on purpose and use a fraudulent 
order to cover it up. And, as a side note--on your mentioning 
of the reeducation through labor system, the laogai system--I 
think we should keep in mind--I published a research report 
last year that examined over 30 Chinese academic research 
articles in which Chinese academics in the 2000s examine the 
shortcomings of the laogai forced labor system, according to 
their views. And they said the laogai system is ineffective. 
It's not good at reeducation and it's not good at forced labor. 
It tries to do both at the same time.
    And the incredible thing is that what we see in Xinjiang is 
that the Xinjiang reeducation camps constitute an improvement. 
They actually took these recommendations, and improved the 
reeducation forced labor system by having a dedicated 
reeducation phase and then a dedicated skills training and 
labor placement process to perform forced labor in private 
companies. And I think it needs to be recognized how the 
Chinese state is innovating their mechanisms of repression, 
also with the poverty alleviation through labor transfer 
program, how this constitutes an innovation by rendering state-
imposed forced labor less visible and more obfuscated, and more 
insidious as a result. And so a lot more work and public 
communication, I think, should occur pointing out that fact. 
Thank you.
    Chair Smith. Thank you. Secretary Lee.
    Secretary Lee. Thank you so much to all three witnesses for 
your excellent testimony and the information provided.
    You've all raised a lot of interesting points. I guess one 
thing I'd like to hear from each of you is some concrete 
advice. And I appreciate some of the suggestions that have come 
out in terms of transparency and so on for the U.S. Government, 
and particularly the FLETF, the Forced Labor Enforcement Task 
Force, which I serve on. You know, on the one hand, you're 
saying we need better guidance for determining what is--you 
know, in terms of state-
sponsored forced labor. But it's a little bit of a 
contradiction because I would say that the business advisory 
that came out tells people not to produce there. And so, you 
know, you're going to give people better guidance like, How do 
you do an audit in a state-
sponsored forced labor situation? Is there even an answer to 
that question, that if we had a better guidebook we could 
improve it?
    But I guess what I'd really love to hear from each of you 
is what you think next steps should be in terms of enforcement. 
We have this important tool, the Uyghur Forced Labor Prevention 
Act. We have the withhold release orders. That can be 
motivating. And the thing that's motivating about it is that it 
covers the entire supply chain. So, in principle, every single 
thing that is in the auto supply chain is covered by both the 
Tariff Act of 1930 and the Uyghur Forced Labor Prevention Act. 
And yet we don't have the visibility, or the tools to 
effectively be able to gather each one. So do you have some 
concrete suggestions for how we can gain better visibility and 
better effectiveness in terms of using the tools at our 
disposal? Thank you.
    Mr. Nova. It's a critical question. And, you know, the 
corporations themselves are carrying out audits every day, 
specifically around forced labor transfers. And one 
recommendation would be for the FLETF itself to contact key 
importers, perhaps the several largest in each of the most 
important industries and ask them to proactively demonstrate 
that they are utilizing audit methods that enable them to 
reliably detect the presence of transferred labor. If they're 
not doing that, then it's quite obvious that they cannot know 
in any given instance whether the products they're importing 
were or were not made with forced labor, in violation of the 
UFLPA import ban.
    And then the question is, what to do about corporations 
that can't demonstrate that. And ultimately, I think 
corporations will have to believe that unless they can credibly 
verify compliance, they ultimately won't be able to import. I 
don't think there is a way to consistently do, at this point in 
time under current political conditions, reliable audits in the 
country. At a minimum, any individual involved in them is 
taking a sizable personal risk. And I don't know how, in that 
context, you can expect people to do their jobs effectively.
    I think the Chinese government will have to draw the 
conclusion that the enormous and relentless obstacles it's 
putting in place that prevent any kind of meaningful 
verification are going to have to be reduced. And that if that 
doesn't happen, there'll be a mass exodus of investment. And, 
very frankly, I don't see any other scenario in which we'd see 
change that doesn't involve that fear existing in the minds of 
decisionmakers in the Chinese government, then leading to some 
softening of the level of repression, surveillance, scrutiny, 
that's making it impossible for auditors to do a credible job.
    Mr. Zenz. I think it's great that the Xinjiang Business 
Advisory is being published. And maybe the best solution is 
actually to publish a separate document, a separate advisory on 
auditing--on auditing in the context of state-imposed forced 
labor. And why that is an inherent contradiction. Why the very 
concept of a standard social audit approach is incompatible 
with the very nature of how state-imposed forced labor 
operates. And, of course, the existing guidance, you know, 
makes sense and says that you can't reliably assess, you can't 
interview, etc. But I think it goes beyond ``you can't 
interview.'' There's a lot more that factors into it. And I 
think FLETF could draw on the updated ILO guidance on that.
    And I've produced a report that actually gives some 
pointers on that. We actually have some hard copies in the 
room. And if there was such guidance, I think it should be 
complemented with a full report documenting the Chinese state's 
efforts of interference and the legislation, the national 
security legislation that basically outlaws the data gathering 
required for conducting a meaningful audit. And you could, of 
course, include testimony and the arrest of citizens--of 
members of American auditing companies, like Mintz, etc.
    And if you had these kinds of documents, even though 
they're not legal, it would create a de facto reference point 
and anchor point that companies like MSCI could be questioned 
against. And I think that would be a start. You know, based on 
what methodology did MSCI remove that rating, in light of 
``X''? But ``X'' needs to be better documented. And on an 
official level, not just by us researchers. And also, the 
Volkswagen. Based on what standard of reference do we criticize 
and say--and the U.S.Government--basically, it fails to meet a 
standard that's effectively of the U.S. Government. And the 
next step after that, of course, would be to punish and declare 
violations and transgressions that are obvious under fraud--as 
fraud.
    Or to enact legislation. Maybe we need dedicated 
legislation that prevents audit-washing worldwide, which is a 
big issue as we've heard today. It's an issue in private 
companies. It's an issue in--private forced labor, state-
imposed forced labor, China, the Democratic Republic of Congo, 
etc., many places. Maybe this is something where legislation 
needs to really move into. And I think subsequent hearings 
would be essential in creating a baseline, but also to create 
information as to what would be effective. But I think an 
updated, maybe dedicated guidance, on audits, both pertaining 
to Xinjiang and to transferred Uyghurs in other provinces--a 
dedicated guidance by FLETF--would be a really good first step.
    Chair Smith. Mr. Wormington, if you could just delay for a 
moment. We have a vote on the floor, and Commissioner Nunn and 
I are going to have to leave. But I would ask, if your time 
permits, Secretary Lee, if you could chair the hearing, and ask 
your further questions, and also hear from Mr. Wormington. I'd 
like to yield so that we can get over and vote. Thank you so 
much.
    Representative Nunn. All right. Thank you, Mr. Chairman, 
for holding this important hearing today. And we'll make sure 
that we move expeditiously here. But we want to talk about 
examining the lies and the duplicity of what the Chinese 
Communist Party has done, particularly when it comes to us. 
China is not new to the realm of misinformation and deceptive 
practices. In fact, just a couple of months ago this very 
Commission reviewed the CCP's lies when it came to the 
inaccuracies in the Universal Periodic Review.
    Today we're going to examine the CCP's abuse of third-party 
social audits to hide their use of forced slave labor in 
products used by everyday Americans, perhaps even many of us in 
this room. The truth is that China will stop at nothing to 
deceive the West and skirt our enforcement mechanisms, as the 
administration has attempted to apply. The CCP continues the 
abuse of Uyghurs and other religious factions and illustrates 
they will continue to commit genocide and crimes against 
humanity in order to fulfill the CCP's interest, and exploit 
for distinct market advantage even against us here in the West.
    However, the CCP does not act alone. This is one of the 
things I want to focus in on today. As we will discuss, there 
are certain corporations and third-party actors that have no 
issue in assisting the CCP in their malign activities. In fact, 
I would offer that the weaponization of social compliance 
audits indicates that the CCP has strategically stacked the 
cards in their favor when it comes to uncovering forced and 
slave labor in their country. So, Mr. Chairman, I want to 
applaud you for taking on what is a difficult issue, one that 
has challenges both inside China and outside China. And I want 
to thank the witnesses for taking time to share your expertise 
with us today, as well as the Senate and the administration for 
being involved in this.
    So I'd like to begin with you, Mr. Wormington. You talked a 
lot about the mining companies, and the different aspects of 
this. Let's just ask the big question in the room: Are Western 
companies being compliant with the CCP in helping them hide 
their abuse, the use of Uyghur, and other slave labor forces? 
And I ask that we talk top level.
    Mr. Wormington. Yes. I think what's really clear, for 
example, from our research on Volkswagen, is that companies do 
have standards that are applying outside China that they are 
not applying inside of China.
    Representative Nunn. Do you think the CCP is playing a 
direct role in influencing these companies, either overtly or 
covertly?
    Mr. Wormington. I think it's certainly true when you talk 
to car company executives that the fear of reprisals that they 
face from the Chinese government is affecting how they're 
interacting with their own suppliers and their own staff in 
China.
    Representative Nunn. Do we have blind spots when it comes 
to this? We certainly have it on the auditing side. But we hear 
the anecdotal evidence coming from companies. I'd like to know, 
where are we most out of information? Or where are those gaps 
existing?
    Mr. Wormington. Yes. The Uyghur Forced Labor Prevention Act 
is an extremely effective piece of legislation in stopping 
products from coming into the U.S. where they are linked to the 
Uyghur region, to Xinjiang. The question is, and this is the 
blind spot, what are the products that come from the Uyghur 
region? Because companies, like car companies, have thousands 
of suppliers, thousands of sub-suppliers. And at the moment 
they do not know whether or not some or many of those sub-
suppliers are in fact sourcing from the Uyghur region.
    Representative Nunn. So aside from the obvious monetary 
profit that these companies are getting, would you offer--are 
there other items behind why they would be standing with the 
CCP, rather than their perceived Western values of a free and 
independent labor force, when they know at some point in their 
supply chain they are exploiting a group of individuals for 
their own corporate profit? Are there other rationales why 
anyone would be doing this?
    Mr. Wormington. The reason, again, to take the example of 
the car industry, is that many of these companies have huge 
business interests in China, have huge financial interests in 
China, have huge joint ventures in China. And the decisions 
that they're taking are, of course, partly motivated by threats 
and reprisals from the government, and partly motivated by the 
fact that they have big business in China.
    Representative Nunn. So by deterring this or ``calling it 
out,'' they would effectively be stepping away from China as a 
source of production for themselves.
    Mr. Wormington. Well, we've seen the risks, for example, 
with H&M, that where companies come out and say they're not 
going to source from the Uyghur region they face reprisals both 
online in China and in terms of their market share.
    Representative Nunn. I'm now going to ask Mr. Nova--you've 
done a lot on the social auditing side. How effective do you 
believe social audits are in both uncovering as well as 
addressing the labor rights abuses that are coming out of the 
Uyghur region within China?
    Mr. Nova. I think social auditing is an ineffective 
mechanism under the best of circumstances. And the situation in 
China represents the worst of circumstances, in terms of the 
challenges and obstacles to auditing. So I do not believe 
reliable information is being developed. Indeed, I don't even 
think corporations are fully utilizing the options available to 
them to at least try to do it a little bit better. And just to 
speak quickly to your earlier question--you know, I don't think 
there needs to be another motivation besides money. 
Corporations aren't in the business of values. They're in the 
business of profit for shareholders. And if making that profit 
requires bending their practices in such a way that it's 
acceptable to a host government, in this case the most 
important host government, the Chinese, historically they've 
been very happy to do that.
    Representative Nunn. Well, Scott, I agree with you on 
aspects of that. I will hopefully highlight that we, as 
consumers, do have values. And that a lot of what drives our 
decisionmaking is based on the fact that we don't exploit 
labor, that we don't use slave workforces in order to do it. We 
fought an entire Civil War here in this country for this very 
purpose. And I would highlight that I think you nailed it on 
the head here--we want to have visibility and transparency into 
this so that we, as consumers, can make informed choices, and 
do hold those corporate entities--whether they're in China or 
here in the United States or elsewhere--accountable.
    I guess my next question then is, who else besides just the 
government, which I think is performing admirably here, can 
help to hold these institutions accountable? Particularly the 
multinational entities?
    Mr. Nova. Well, there are, of course, other country 
governments which also need to step up. And there's been some 
positive movement in Europe in this regard, I think, following 
the lead of the U.S. Government in terms of addressing this 
specific issue. So that's encouraging. You make a very 
important point about consumers. And there are consumer 
organizations. But you know, consumers aren't a highly 
organized, highly mobilized constituency. If they were, I think 
we'd have very different supply chains, because you're 
absolutely right. Consumers don't want to be wearing clothing 
made with forced labor. They don't want the solar panels 
they're proud of installing on their roof to include 
polysilicon that was made with forced labor.
    And if consumers understood fully what was happening in 
supply chains globally, they would demand change. The primary 
function of social auditing is to shield the actual practices 
in supply chains from the scrutiny of consumers and thereby 
enable business as usual to continue, even in the absence of a 
level of humanness that consumers would consider minimally 
acceptable as consumers. And so we need to remove that shield 
and ensure that consumers can see what's actually happening. 
And if we succeed in that regard, then we will change because 
at the end of the day, corporations need someone to sell their 
products to.
    Representative Nunn. Mr. Nova, I would not disagree with 
anything you just said. I think that's on the mark. Let me ask 
then, are there success stories that we can point to for 
further replication that really highlight how we provide the 
transparency, both to the consumers, both to the end user, as 
well as to the corporations themselves that are trying to 
acquire this to know what is actually happening in China, so 
that we can hold these folks accountable?
    Mr. Nova. There are examples from other countries that are 
positive. I talked earlier in my testimony about the horrible 
situation in Bangladesh, of workers dying in fires and 
structural collapses in buildings that had supposedly been 
inspected, factory buildings, by auditing firms. But the worst 
of those disasters ultimately created enough pressure that more 
than 200 brands and retailers signed an enforceable agreement 
with worker representatives, not just to do inspections but to 
clean up the buildings, to renovate the buildings, and help pay 
for it to make them safe. We then saw a radical physical 
transformation of the production infrastructure of the 
Bangladesh garment industry, resulting in concretely 
demonstrably safer factories for more than 2 and a half million 
garment workers.
    And the key component of that was that the results of the 
inspections done by the safety engineers, each hazard 
identified and the remedy necessary to correct it, was 
published. And the progress at each factory toward correcting 
each of those hazards was reported publicly on an ongoing 
basis. That is the opposite of what happens in the field of 
corporate social auditing, where nothing is public. The workers 
themselves don't see the results of the investigations that 
supposedly exist to protect their rights. But can you have an 
agreement like that in China? You spoke to this earlier, 
Secretary Lee. Who signs an agreement on behalf of workers with 
corporations that speaks to what happens to workers in China? 
That's the challenge with replicating that model in the Chinese 
context.
    Representative Nunn. I mean, I think we can speak to 
millions of car owners here in the United States that 
potentially are going to have electric vehicles ``chosen'' for 
them, or even want to do it for their own energy efficiency or 
social consciousness. They don't want to know that that battery 
came from a cobalt mine that was done by a child labor force, 
perpetrated by the Chinese on a country in Africa. I think that 
there's a real requirement here for us not to do the facade of 
social auditing, but to have true transparency here. Thank you 
for your testimony.
    Deputy Undersecretary Lee, you've been a leader in this 
with the administration. Some of the recommendations that have 
been provided here, I wonder if you might share with us a 
little bit. If this transparency were to be provided, if we 
were able to have a better indication for not only Americans 
but consumers around the world, what roles could the 
administration play in enforcing this, holding China 
accountable, and, ultimately, making sure that we, as the 
consumer, have some kind of insight into what's happening here 
so that we can make our own market-drive choices?
    Secretary Lee. Thank you so much, Mr. Nunn, for that 
question. I mean, I think transparent, accountable supply 
chains are essential. And it's something that in some ways we 
got away from in the go-go days of the global economy, where 
these complex and fractured supply chains exist so that 
corporations do not have to take responsibility, they don't 
have to know. But I think it's completely possible. It's just 
that we have to change the business culture to make it 
understandable that everybody from the CEO on down in a company 
understands that--you know, obviously they're making purchasing 
decisions that require--you decide where you're going to buy it 
from. What's the quality of it? There's quality control. 
There's price. There's everything else.
    You could, if you wanted to, know who the people were. So I 
think that we're working in that direction in the U.S. 
Government, in terms of both what's required by Customs and 
Border Protection and the enforcement of things, but also in 
terms of the international finance loans, in solar supply 
chains, looking for more transparency at every stage of the 
supply chain. So that is something that we are very committed 
to doing. And I think that's all good. It's good for consumers. 
Ultimately, it's good for businesses. They may resist it in the 
short term, but I think this is the way of the future. And I 
think we have a situation that is morally unacceptable if we 
don't have the transparency. Thank you, sir.
    Representative Nunn. Thank you, Deputy Undersecretary Lee. 
Thank you, Chairman. And I would highlight, let's hold the bad 
actors accountable, let's recognize the many who have tried to 
step out on this to do the right thing--both as consumers and 
as corporate citizens--and ultimately recognize that the real 
threat here is coming from a government that has largely 
enforced a slave labor mentality on its own people inside the 
CCP. And the ultimate adversary here are the people who are 
allowing this to happen at the front end. The threat happens 
both inside and outside of China. Thank you, Mr. Chairman.
    Chair Smith. Thank you very much. And I'm sorry, we do have 
to leave. It's on zero over at the--on the floor. And I really 
thank our distinguished Commissioner for taking over the 
hearing. Without objection, a statement by Alicia Hennig will 
be made a part of the record. And, again, I thank you so much 
for your recommendations and your testimony.
    Secretary Lee. Thank you, Chairman Smith.
    I think we'll resume where we left off--with Mr. 
Wormington.
    Mr. Wormington. Thank you, Commissioner. Yes, the question 
of recommendations for FLETF I think is a really important 
question. I have one very simple one up front, which is that 
aluminum be made a high-priority sector, because of the 
percentage of the material globally that is coming out of the 
Uyghur region. I think that should happen as soon as possible, 
and certainly by this summer. I think that in terms of the 
broader recommendations, this question of supply chain 
transparency would really be front-and-center for me. As we've 
said, the Uyghur Forced Labor Prevention Act is an extremely 
powerful tool. And the question is, how do we identify those 
products that are coming from the Uyghur region into the U.S.?
    So far, that identification has been done sector by sector, 
based on the priorities for enforcement of CBP. And so, for 
example, in the automotive sector I think there's been a sense 
that electric vehicle batteries might be a priority for 
enforcement. And I know that that has then led to much more 
scrutiny on the supply chains of electric vehicle batteries 
within car companies. So as you have a priority, as you have a 
sense that enforcement is coming, you have reactions from the 
industry. Which, of course, is exactly what we want. But we 
need something that creates those incentives on a much more 
systematic and systemic level, given how many products and how 
many commodities are linked to the Uyghur region.
    At the moment, CBP is using some techniques--for example, 
through questionnaires that they're giving to sectors--whether 
it's to solar, whether it's to textiles--about high-risk 
commodities like polysilicon or cotton. And those 
questionnaires are designed to ask importers about the origin 
of their materials and about their supply chain transparency. 
But they're being done as part of that enforcement 
infrastructure, and not as part of a systemic legislative 
effort to push for more supply chain transparency.
    So I think it's really important we look to other models. 
For example, Dodd-Frank has been used for conflict minerals to 
generate transparency over supply chains and the refining of 
high-risk metals from the Democratic Republic of Congo. And we 
should think about, if not necessarily transposing that exact 
same model, then what the model is for using legislation to 
drive transparency across high-risk commodities, linked to the 
Uyghur region.
    Secretary Lee. Thank you very much, Mr. Wormington, for 
that answer. And I think we're really ready to wrap up. But I 
wanted to give each of the witnesses a chance, if there's any 
last point that you wanted to make before we adjourn.
    Dr. Zenz.
    Mr. Zenz. Sure. I would just--we've, I think, had very 
important input, very educated input. And in my opinion, this 
is such a long-standing problem in so many ways; we have seen 
so many gaps also in understanding the nature of state-imposed 
forced labor, and the kind of challenge that this poses. The 
ILO itself discounted the role of state-imposed forced labor. 
It discounted this role in the 2000's, said that we needed to 
pay more attention to slavery, to global supply chains, which 
of course in many ways was very true. But it also kind of 
disempowered multilateral institutions, and the ILO itself, to 
be less prepared, first, to kind of stumble through the 
Uzbekistan situation in a way that was heavily criticized, but 
then also to be quite unprepared when the Uyghur situation 
really exploded. And it's now the largest system of state-
imposed forced labor.
    And so I would really urge Congress and the administration 
to followup, to hold these hearings, to commission this report 
into the status of auditing in China, as suggested; for the 
UFLPA guidance to update its requirements of supply chain 
disclosure up to the raw material level for high-risk sectors, 
and so on; to hold hearings and to investigate the practices. 
Under what circumstances did MSCI remove this rating, which is 
unbelievable. In many ways, when I was preparing for this 
hearing I felt that this is kind of the tip of an iceberg. And 
it's like the opening of a door that leads to a whole building. 
So I just want to emphasize with this metaphor the need for 
followup hearings and followup action on several of these 
issues. Thank you.
    Mr. Nova. I'd just reiterate what I said earlier about the 
importance and value of intensified scrutiny of the 
methodologies being employed by corporations and the auditors 
that they utilize to ostensibly ensure compliance with the 
UFLPA and with section 307. And whatever can be done to draw 
out information and create transparency about what companies 
are and are not doing, I think would be extremely helpful in 
advancing this debate and the enforcement of those laws.
    Secretary Lee. Thank you so much to all three of you. Your 
testimony has been extraordinarily useful and valuable, but 
also the work that you all do all day every day is valuable to 
us. And so we appreciate it. We look forward to holding the 
next hearing which will, I think, delve deeper, as you say, Dr. 
Zenz, into the door that's been cracked open a slight bit. But 
I think you have all raised a lot of systemic issues here that 
are not going to be solved in the short term, or not solved 
easily. But I think you've also put before us some very 
concrete and valuable suggestions for how we might proceed. So 
I thank you for your time. I thank everyone for being here. And 
with that, I conclude this hearing.
    [Whereupon, at 11:54 a.m., the hearing was concluded.]

?














=======================================================================


                            A P P E N D I X

=======================================================================


                          Prepared Statements

                              ----------                              


                       Statement of Hon. Thea Lee

    Congressman Smith, Senator Merkley, Honorable members of the 
Commission, thank you for the invitation to appear before you today.
    I am the Deputy Undersecretary of Labor for International Affairs 
at the Department of Labor and oversee the work of the Bureau of 
International Labor Affairs (or ILAB for short). ILAB plays a pivotal 
role in promoting and protecting workers' rights worldwide. By 
advocating for international labor rights, including the right to 
organize, bargain collectively, to have safe working conditions, and to 
be free of child labor, forced labor, and discrimination, ILAB 
contributes to creating a more equitable global labor landscape.

Overview

    The issue of factories and fraud in China is multifaceted, with 
significant implications for human and labor rights and the integrity 
of our global supply chains.
    In my testimony, I will address two related issues: first--the 
challenges and risks for businesses of using social compliance auditing 
as a definitive assessment of labor conditions in general, and second--
the heightened risks given the ongoing human and labor rights 
violations in the Xinjiang Uyghur Autonomous Region, making reliable 
audits in the region impossible.

Risks of using social compliance auditing alone as a definitive 
assessment of labor rights

     Social auditing can be a useful tool to assess compliance at a 
particular point in time, but it cannot be the only mechanism for 
detecting labor rights violations and abuses. Audits are often 
announced in advance, giving managers time to prepare a facility. 
Managers can easily fake timesheets to skirt pay and overtime laws. And 
workers may be pressured to provide inaccurate information.
    To be effective, social auditing should be part of a comprehensive 
social compliance system that ensures that trade unions, democratic 
worker organizations, and other worker representatives provide support 
and voice for workers to identify and raise concerns and collectively 
advocate for their rights and interests without fear of retaliation. 
ILAB's Comply Chain provides examples of best practices in this 
area.\1\
---------------------------------------------------------------------------
    \1\ See ``Steps Toward a Worker-Driven Social Compliance System'' 
at https://www.dol.gov/
agencies/ilab/comply-chain/steps-to-a-social-compliance-system.
---------------------------------------------------------------------------
    Worker voice and the ability to freely express concerns are 
particularly important. When authentic worker voice exists, workers can 
freely elect their union representatives, identify problems, negotiate 
agreements, and hold parties accountable. ILAB recently commissioned 
Penn State University to provide a report, ``Worker Voice: What It Is, 
What It Is Not, and Why It Matters.'' \2\ This report provides 
important insight on why legitimate, authentic collective worker voice 
is critical to ensuring effective social compliance.
---------------------------------------------------------------------------
    \2\ See ``Worker Voice'' at: https://www.dol.gov/agencies/ilab/
worker-voice?_ga=2.22750203.
1707314604.1713908500.385848940.1713786258
---------------------------------------------------------------------------
    It is clear that effective worker voice is impossible when workers 
are trapped in state-sponsored forced labor, where there are no 
independent, democratic unions, and where workers continue to face 
threats and reprisals.

On the ongoing human and labor rights violations in the XUAR

    This is the situation we face in China. There are widespread 
restrictions and repression of freedom for human rights defenders. 
There isn't just a lack of civil society presence; rather, the entire 
civic space has been shut down. In Xinjiang in particular, ethnic 
minorities live in fear of the Chinese government.
    Any audit occurring in Xinjiang cannot be conducted without 
government oversight, making objective worker interviews free from 
reprisal an impossibility. As the U.S. Government highlighted in the 
Xinjiang Business Advisory,\3\ published in 2021 and updated in 
September 2023, auditor interviews with workers cannot be relied upon 
given pervasive surveillance, the threat of detainment, and evidence of 
workers' fear of sharing accurate information. Moreover, auditors have 
reportedly been detained, harassed, threatened, or stopped at the 
airport.
---------------------------------------------------------------------------
    \3\ See Departments of Labor, State, Treasury, Commerce, Homeland 
Security and the Office of the U.S. Trade Representative Xinjiang 
Supply Chain Business Advisory, https://www.state.gov/xinjiang-supply-
chain-business-advisory/.
---------------------------------------------------------------------------
    That is why dozens of major audit firms have not operated in 
Xinjiang for years; the fear of reprisal for both workers and auditors 
remains high. Social audits in China should not be seen as an 
authoritative source for companies reflecting on-the-ground human 
rights conditions. The business community needs to be aware that any 
audits, and frankly any business operations undertaken inside China, 
carry heightened labor and human rights risks.

Concluding remarks

    In conclusion, ensuring that workers have a substantive role and 
voice in social compliance is essential to make social compliance 
audits legitimate. Without workers' feedback, input, and support in 
resolving issues, labor exploitation risks in supply chains around the 
world will unfortunately persist.
    The Department of Labor serves on the Forced Labor Enforcement Task 
Force to support implementation and enforcement of the Uyghur Forced 
Labor Prevention Act. The UFLPA is a powerful tool to address egregious 
human and labor rights abuses and to ensure that U.S. workers and 
businesses have a level playing field. We'll continue to leverage that 
tool to protect the integrity of lawful trade and the rights of workers 
and continue to raise these issues and call for change.
    I thank you for your attention.

           Statement of Scott Nova, Worker Rights Consortium

    Chairman Smith, Co-chairman Merkley, Members of the Commission, 
thank you for convening this hearing and for the ongoing efforts of the 
Commission and its staff to hold corporations accountable for what 
happens to the workers in their supply chains in China.
    In assessing the validity of auditing and certification schemes in 
the People's Republic of China, it is necessary to bear in mind the 
checkered history of such schemes, not just in China but across global 
production chains. So-called social auditing has been a prominent 
component of global manufacturing and sourcing for more than thirty 
years, beginning in the apparel and footwear industries and expanding 
over time to a vast array of sectors and products. These schemes, which 
have proven public relations value to corporations keen on convincing 
customers, journalists, and policymakers that they are operating their 
supply chains responsibly, have often been of little or no value to the 
workers whose rights they purportedly exist to protect.\1\
---------------------------------------------------------------------------
    \1\ Sarosh Kuruvilla, Private Regulation of Labor Standards in 
Global Supply Chains: Problems, Progress, and Prospects, Ithaca, NY: 
ILR Press, 2021; and MSI Integrity, Not Fit-for-Purpose: The Grand 
Experiment of Multi-Stakeholder Initiatives in Corporate 
Accountability, Human Rights and Global Governance, July 2020, https://
www.msi-integrity.org/wp-content/uploads/2020/07/
MSI_Not_Fit_For_Purpose_FORWEBSITE.FINAL_.pdf.
---------------------------------------------------------------------------
    The examples of social auditing's failures are voluminous; I will 
cite one that is particularly illustrative. The worst industrial 
disaster in a factory setting in world history, the collapse of the 
Rana Plaza factory building in Bangladesh in 2013, which killed 1,134 
workers, was the culmination of two decades of scandalous recklessness 
by U.S. and European apparel brands and their local partners, resulting 
in dozens of mass fatality fires and structural failures in factories 
across that country's sprawling garment sector.\2\ In almost every such 
case, including Rana Plaza, the factories in which workers died en 
masse had been repeatedly inspected by social auditors who failed to 
identify or correct lethal hazards that were readily detectable. After 
Rana Plaza, when legitimate building safety inspections finally began 
in Bangladesh under the auspices of the Accord on Fire and Building 
Safety, the inspectors did not identify a single factory in a multi-
story building, out of more than 1,600 factories inspected, that had 
proper fire exits.\3\ All these factories had been the subject of 
numerous social audits conducted for Western brands and retailers. The 
factories were death traps before these social audits, and they were 
death traps afterward, a perfect track record of failure over more than 
a decade and a half of social auditing and across tens of thousands of 
individual audits.
---------------------------------------------------------------------------
    \2\ Scott Nova and Chris Wegemer, ``Outsourcing Horror: Why Apparel 
Workers Are Still Dying, One Hundred Years after Triangle Shirtwaist,'' 
Ed. Richard P. Appelbaum and Nelson Lichtenstein, Achieving Workers' 
Rights in the Global Economy, p.17-31, Ithaca, NY: Cornell University 
Press, 2016, https://www.jstor.org/stable/10.7591/j.ctt1h4mhcm.5.
    \3\ Review and analysis of initial inspection reports and 
corrective action plans available on the website of the International 
Accord for Health and Safety in the Textile and Garment Industry, 
``Status of factories in Accord programs,'' https://
internationalaccord.org/factories/#factory-search.
---------------------------------------------------------------------------
    Prominent examples of the failure of social auditing to protect 
workers can be found in every sector--from apparel,\4\ to 
electronics,\5\ to toy manufacturing,\6\ to seafood \7\--and in any 
country that intersects with global supply chains. Among the most 
notable is the long history of labor rights auditing failures at 
Apple's primary supplier in China, Foxconn. Our organization, in 
conjunction with the Economic Policy Institute, documented aspects of 
this history in a series of publications between 2012 and 2015. Among 
the grim consequences of inadequate social auditing by Apple at Foxconn 
were worker fatalities resulting from easily preventable explosions, 
tens of millions of dollars in stolen wages that were never repaid, and 
in-
humane work hours and production pressure that contributed to the rash 
of worker suicides at Foxconn in 2010 and 2011.\8\
---------------------------------------------------------------------------
    \4\ Brian Finnegan, Responsibility Outsourced: Social Audits, 
Workplace Certification and Twenty Years of Failure to Protect Worker 
Rights, AFL-CIO, April 23, 2023, https://aflcio.org/sites/default/
files/2017-03/CSReport.pdf.
    \5\ International Labor Rights Forum and Business, Human Rights and 
Environment Research Group School of Law, University of Greenwich, Time 
for a Reboot: Monitoring in China's Electronics Industry, September 
2018, p.7-9, https://gala.gre.ac.uk/id/eprint/22685/1/22685 
percent20MARTIN-ORTEGA_Time_for_a_Reboot_2018.pdf.
    \6\ Li Qiang, ``Fair Toys for Our Kids,'' Hearing before the 
Congressional-Executive Commission on China: ``Working Conditions and 
Factory Auditing in the Chinese Toy Industry,'' December 11, 2014, 
https://www.govinfo.gov/content/pkg/CHRG09113jhrg92632/html/
CHRG09113jhrg 92632.htm.
    \7\ The Outlaw Ocean Project, ``China: The Superpower of Seafood,'' 
accessed April 23, 2024, https://www.theoutlawocean.com/investigations/
china-the-superpower-of-seafood/findings/#failure-of-private-sector-
safeguards.
    \8\ Scott Nova and Isaac Shapiro, ``Polishing Apple: Fair Labor 
Association gives Foxconn and Apple undue credit for labor rights 
progress,'' Economic Policy Institute, Issue Brief #352, November 8, 
2012, https://www.epi.org/publication/bp352-polishing-apple-fla-
foxconn-labor-rights/; and Scott Nova and Isaac Shapiro, ``Assessing 
the Reforms Portrayed by Apple's Supplier Responsibility Report,'' 
Economic Policy Institute, Issue Brief #377, March 25, 2014, https://
www.epi.org/publication/assessing-reforms-portrayed-apples-supplier/. 
Additional related commentaries and blog posts are available at https:/
/www.epi.org/people/scott-nova/.
---------------------------------------------------------------------------
    These failures are the product of flaws inherent in the approach to 
labor inspection that defines most social auditing systems.\9\ For 
global corporations to credibly claim that their social auditing 
schemes provide a meaningful umbrella of protection for workers, these 
schemes must be comprehensive in scope, which requires regular 
inspections of hundreds, thousands, or tens of thousands of production 
facilities and worksites across a corporation's supply chain. The only 
way to conduct thousands of inspections annually, at a level of 
expenditure considered affordable by corporations whose zeal for 
minimizing labor costs explains why they are producing in Bangladesh, 
China, Vietnam, and other low-wage countries in the first place, is to 
use auditing methods that allow dozens or hundreds of labor compliance 
standards and benchmarks to be assessed, at even the most massive 
production facilities, in the space of one to 2 days.\10\ Such 
inspections are superficial by necessity.
---------------------------------------------------------------------------
    \9\ Abigail Higgins, ``Corporations are paying for worker abuse 
audits that are `designed to fail', say insiders,'' The Guardian, 
October 10, 2023, https://www.theguardian.com/global-
development/2023/oct/10/corporate-auditing-foreign-workers-abuse-
claims.
    \10\ For testimony from auditors on what they can accomplish during 
audits spanning one or 2 days, see: Human Rights Watch, `` `Obsessed 
with Audit Tools, Missing the Goal': Why Social Audits Can't Fix Labor 
Rights Abuses in Global Supply Chains,'' November 15, 2022, https://
www.hrw.org/report/2022/11/15/obsessed-audit-tools-missing-goal/why-
social-audits-cant-fix-labor-rights-abuses.
---------------------------------------------------------------------------
    So are the skills of the auditors. The only way for one or two 
people to carry out labor inspections that purport to cover the panoply 
of legal and regulatory standards relevant to a typical workplace is 
for those individuals to have a little knowledge about a lot of 
subjects. In the U.S., we have numerous different regulatory agencies 
at the Federal, state, and local level responsible for the enforcement 
of labor-related laws and standards at American workplaces, including 
the Wage and Hour Division of the Department of Labor, the National 
Labor Relations Board, the Occupational Safety and Health 
Administration, the Equal Employment Opportunity Commission, the Social 
Security Administration, and local building inspectorates, among other 
bodies. Within each, there are different categories of employees with 
training in specific regulatory disciplines. These divisions of labor 
are typical of well-developed regulatory systems because of the 
extensive expertise required to handle each category of labor rights. 
Social auditing systems, by contrast, almost invariably expect each 
individual auditor to handle every applicable labor and worker 
protection standard. Each auditor is thus a jack of all trades and a 
master of none, called upon to carry out a series of specialized tasks 
without specialized training. How did audits conducted in thousands of 
apparel factories in Bangladesh invariably miss the fire and structural 
hazards that threatened workers' lives? Because the people who 
conducted those audits had no meaningful training in the identification 
of fire and structural hazards. This did not, however, stop the firms 
they worked for from issuing an endless stream of audit reports 
claiming to have assessed workplace safety, in Bangladesh and 
elsewhere.\11\
---------------------------------------------------------------------------
    \11\ Declan Walsh and Steven Greenhouse, ``Certified Safe, a 
Factory in Karachi Still Quickly Burned,'' The New York Times, December 
8, 2012, https://www.nytimes.com/2012/12/08/world/asia/pakistan-
factory-fire-shows-flaws-in-monitoring.html; and European Center for 
Constitutional and Human Rights, ``RINA certifies safety before factory 
fire in Pakistan,'' November 2016, https://www.ecchr.eu/fileadmin/
Fallbeschreibungen/CaseReport_Rina_Pakistan.pdf.
---------------------------------------------------------------------------
    Even more problematic are the conflicts of interest inherent in 
social auditing and certification mechanisms. U.S. corporations don't 
produce in China, or Guatemala, or Cambodia because they want to uphold 
labor rights; they produce in countries with terrible labor rights 
environments because it is much cheaper than producing in the U.S. 
While identifying and correcting labor rights violations and improving 
suppliers' labor practices is essential to achieve genuine respect for 
worker rights in a corporation's supply chain, it also costs more to 
produce under good conditions than under bad conditions, so the labor 
rights promises corporations make are in direct conflict with their 
financial imperatives.
    Corporations do not utilize auditing schemes because they are 
considering changing the way they operate their supply chains--for 
example, leaving a region or country where the labor rights environment 
precludes adequate worker rights protection or paying higher prices to 
suppliers to support better labor practices. They utilize these schemes 
because they want to preserve lucrative sourcing strategies and need to 
convince customers and policymakers that those strategies are 
compatible with the humane treatment of workers. That goal is not 
served if audits consistently reveal embarrassing realities and show a 
need for major reform.
    Corporate imperatives shape auditing schemes, not vice versa. The 
corporations either employ their auditors directly or select and pay 
contract auditing firms. While industry parlance uses terms like 
``independent'' to refer to auditing schemes, what corporations mean by 
that term is only that they do not directly own the auditing firms to 
which they outsource work: they do, however, choose the firms, pay them 
for their services, and decide whether to use them again in the future. 
And, unlike the world of financial auditing,\12\ where there are 
industry-wide rules, standards, and regulatory mechanisms designed to 
preserve the ability of auditors paid by a client to be in a position 
to render independent judgment of that client's performance, and where 
there are legal penalties for malfeasance or fraud, social auditing is 
an industry notorious for the lack of any binding professional 
standards and the total absence of regulatory oversight.\13\ Some 
certification bodies purport to utilize rigorous standards that they 
use to ``accredit'' auditing firms, but any such standards are purely 
self-generated and operate apart from any independent oversight.\14\ 
And since audit reports are almost always secret--including from the 
workers whose rights they are officially protecting--auditors face no 
accountability via public scrutiny of their work.\15\ This is a system 
in which auditors have strong incentive to avoid inconvenient 
conclusions and rarely face any consequences for underreporting labor 
rights violations.
---------------------------------------------------------------------------
    \12\ Organisation for Economic Co-operation and Development, Making 
Codes of Corporate Conduct Work: Management Control Systems and 
Corporate Responsibility, OECD Working Papers on International 
Investment, No. 2001/03, Paris: OECD Publishing, p.10, https://doi.org/
10.1787/525708844763.
    \13\ Business & Human Rights Resource Centre, ``Social audit 
liability: Hard law strategies to redress weak social assurances,'' 
September 2021 https://media.business-humanrights.org/media/documents/
2021_CLA_Annual_Briefing_v5.pdf; Anna Beckers, Enforcing Corporate 
Social Responsibility Codes: On Global Self-Regulation and National 
Private Law, Portland, OR: Hart Publishing, 2015, p.49, https://
dokumen.pub/enforcing-corporate-social-responsibility-codes-on-global-
self-regulation-and-national-private-law-9781849469029-9781849468992-
9781849469012.html; and Re:Structure Lab, Forced Labour Evidence Brief: 
Social Auditing and Ethical Certification, Vancouver: Stanford, Simon 
Fraser, and Yale Universities, 2022, p.21-22, https://
www.restructurelab.org/s/ReStructureLab_Social_Auditing_and_Ethical_
Certification_July2022.pdf.
    \14\ Re:Structure Lab, Forced Labour Evidence Brief: Social 
Auditing and Ethical Certification, Vancouver: Stanford, Simon Fraser, 
and Yale Universities, 2022, p.20, https://www.restructurelab.org/s/
ReStructureLab_Social_Auditing_and_Ethical_Certification_July2022.pdf.
    \15\ Carolijn Terwindt and Miriam Saage-Maass, ``Liability of 
Social Auditors in the Textile Industry,'' Friedrich Ebert Stiftung, 
December 2016, p.8, https://www.ecchr.eu/fileadmin/Publikationen/
Policy_Paper_Liability_of_Social_Auditors_in_the_Textile_Industry_ 
FES_ECCHR_2016.pdf, (``Contrary to auditing scheme claims of 
>>transparency<< (e.g. BSCI 2015), audit reports are regarded as 
confidential and the property of the auditor's client and therefore 
generally not made public. Therefore, workers or unions have no means 
of verifying the veracity of such reports.'').
---------------------------------------------------------------------------
    Social auditing, in practice, involves giving unqualified people 
inadequate time to pursue an unrealistic objective they have no 
incentive to achieve.
    Social auditing is poorly suited to uncovering labor rights abuses 
even in environments conducive to labor rights investigation; an 
unconducive environment, like the one that has long prevailed in China, 
makes this mismatch extreme. Competent labor inspections depend on the 
ability of workers to speak freely about their circumstances and 
conditions of work. They require a functioning civil society in which 
knowledgeable labor rights organizations can provide guidance to 
investigators. The challenges of auditing in China, in this regard, 
were extensive a decade ago.\16\ The closure of civic space, 
acceleration of censorship, and intensification of political repression 
in recent years has made the situation far worse.
---------------------------------------------------------------------------
    \16\ Mark Anner, ``CSR Participation Committees, Wildcat Strikes 
and the Sourcing Squeeze in Global Supply Chains,'' British Journal of 
Industrial Relations, March 2018, p.75-98, https://wsr-network.org/
resource/csr-participation-committees-wildcat-strikes-and-the-sourcing-
squeeze-in-global-supply chains/.
---------------------------------------------------------------------------
    This gives rise to a critical question: how can corporations 
sourcing from China carry out the labor rights due diligence, 
specifically with respect to forced labor, that they have a legal 
obligation to perform if they import products into the United States?
    The answer with respect to auditing within the Xinjiang Uyghur 
Autonomous Region (``XUAR'' or ``Uyghur Region'') is simple: they 
can't. In March 2020, I testified to this Commission that ``No Uyghur 
worker in the XUAR can possibly feel safe speaking candidly. ( . . . ) 
The only answer a worker can safely give to the question of whether her 
labor is voluntary is `yes' . . . At this point, no firm should be 
conducting audits in the XUAR. The only purpose audits can serve is to 
create the false appearance of due diligence and thereby facilitate 
continued commerce in products made with forced labor.'' \17\ This 
Commission's 2022 Annual Report \18\ states: ``Firms cannot rely on 
factory audits to ensure that their supply chains are free of forced 
labor in the XUAR.'' This reality persists and meaningful labor rights 
auditing, on the issue of forced labor and on any other labor rights 
question, remains a practical impossibility in the region.
---------------------------------------------------------------------------
    \17\ Testimony of Scott Nova before the Congressional-Executive 
Commission on China, ``Global Supply Chains, Forced Labor, and the 
Xinjiang Uyghur Autonomous Region'' Roundtable, March 11, 2020.
    \18\ Congressional-Executive Commission on China (CECC), Annual 
Report 2022, November 2022, p.260, https://www.cecc.gov/sites/
chinacommission.house.gov/files/2022_CECC_Report_
0.pdf.
---------------------------------------------------------------------------
    Many auditors have stopped auditing in the XUAR. Some did so in 
response to public calls from human and labor rights organizations,\19\ 
others because enactment and implementation of the Uyghur Forced Labor 
Prevention Act (UFLPA),\20\ the issuance of the Withhold Release Order 
covering cotton and tomatoes from the Uyghur Region that preceded 
it,\21\ and the public exposure of widespread state-
sponsored forced labor in the region,\22\ has shrunk the market for 
social auditing. Brands that have ceased sourcing from the region for 
legal or reputational reasons, or are attempting to conceal their 
sourcing, have no reason to hire auditors to conduct labor inspections.
---------------------------------------------------------------------------
    \19\ Eva Xiao, ``China's Xinjiang despite forced-labor concerns 
restricted access has made examinations difficult in a region where 
China's repressive tactics against Muslim minorities have been 
criticized,'' Wall Street Journal, September 21, 2020, https://
www.wsj.com/articles/auditors-say-they-no-longer-will-inspect-labor-
conditions-at-xinjiang-factories-11600697706; and Business & Human 
Rights Resource Centre, ``China: Auditors, certification firms & 
organisations answer questions on their approach in Xinjiang as forced 
labour concerns grow,'' Updated May 17, 2021, https://www.business-
humanrights.org/en/latest-news/auditors-answer-questions-on-their-
approach-in-xinjiang-among-growing-forced-labour-concerns/.
    \20\ Public Law No. 117-78. See: U.S. Customs and Border Protection 
(CBP), ``The Uyghur Forced Labor Prevention Act,'' accessed April 26, 
2024, https://www.cbp.gov/trade/forced-labor/UFLPA, and U.S. Department 
of Homeland Security (DHS), ``Uyghur Forced Labor Prevention Act,'' 
https://www.dhs.gov/uflpa.
    \21\ CBP, ``Xinjiang Uyghur Autonomous Region WRO Frequently Asked 
Questions,'' accessed April 26, 2024, https://www.cbp.gov/trade/
programs-administration/forced-labor/xinjiang-uyghur-autonomous-region-
wro-frequently asked-questions.
    \22\ A collection of investigative reports and research studies is 
available at Coalition to End Forced Labour in the Uyghur Region, 
``Reports,'' https://enduyghurforcedlabour.org/home/reports/
---------------------------------------------------------------------------
    Some auditing firms, however, continue to operate in the region, 
though it is unclear if they are claiming to verify the absence of 
forced labor at specific production facilities or worksites.
    Companies and organizations that indicated publicly, as recently as 
2021, that they were auditing in the Uyghur Region, or would conduct an 
audit there upon request, were: ELEVATE, ERM, Sedex, and TCO 
Certified.\23\ The Worker Rights Consortium (WRC) has been told by a 
confidential source that ELEVATE continues to audit in the Uyghur 
Region. There is also, of course, the now notorious audit recently 
commissioned by Volkswagen of its joint venture facility in the XUAR, 
which predictably concluded that all is well.\24\ That audit was so 
lacking in credibility that most of the staff of the German consulting 
firm that performed it for Volkswagen issued a public statement 
disavowing any involvement in the project.\25\
---------------------------------------------------------------------------
    \23\ Business & Human Rights Resource Centre, ``China: Auditors, 
certification firms & organisations answer questions on their approach 
in Xinjiang as forced labour concerns grow,'' Updated May 17, 2021, 
https://www.business-humanrights.org/en/latest-news/auditors-answer-
questions-on-their-approach-in-xinjiang-among-growing-forced-labour-
concerns/. On April 23, 2024, the WRC checked the websites of the 
auditors and certifiers contacted by BHRRC during spring 2021 and there 
were no new statements related to the Uyghur Region on their websites.
    \24\ Associated Press, ``Volkswagen-commissioned audit finds no 
signs of forced labor at plant in China's Xinjiang region,'' December 
6, 2023, https://apnews.com/article/china-volkswagen-xinjiang-uyghur-
forced-labor-c505dac48bebe92b6f792bafdaae61f9; and Volkswagen, ``ESG 
Controversies,'' March 19, 2024, https://www.volkswagen-group.com/de/
esg-controversies-15846.
    \25\ Victoria Waldersee, ``Senior staff at auditing firm distance 
themselves from audit of VW's China plant,'' Reuters, December 13, 2023 
https://www.reuters.com/business/autos-
transportation/auditing-firm-distances-itself-duos-work-vws-china-
plant-2023-12-13/, and Patricia Nilsson, ``Staff rebel at consultancy 
behind VW review of Xinjiang rights abuse,'' Financial Times, December 
13, 2023, https://www.ft.com/content/46b37a15-054e-4d40-b42b-
f31a0e3a07c3.
---------------------------------------------------------------------------
    As the enforcement of the UFLPA accelerates, and the pressure 
mounts on industries like solar and auto, that have been heavily 
dependent on inputs from the XUAR \26\ and have little experience with 
intensive scrutiny of labor practices in their supply chains, the risk 
remains that we will see a resurgence of efforts to use social auditing 
within the XUAR as legal and political cover for continuing to source 
from the region. As has for decades been the case in the apparel 
industry, the sector in which my organization specializes, if there is 
a corporation in need of a favorable labor rights report it can 
brandish to shore up a reputation sullied by disreputable labor 
practices, that brand will always be able to find a social auditor 
willing to issue that report, even in circumstances where the obstacles 
to effective investigation are obviously insurmountable. In December 
2018, the Associated Press (AP) published a story conclusively 
documenting the production of clothing for U.S. brands at an internment 
camp in the city of Hotan; \27\ the manufacturer, Hetian Taida, was 
soon to become the first company in the XUAR to be the subject of a 
U.S. Withold Release Order.\28\ The company was operating two 
facilities, one inside the camp and also one adjacent to it, which 
included, among its employees, what XUAR authorities call camp 
``graduates'': recently released detainees who are forced to work at a 
particular workplace as a means of continued government scrutiny and 
control. At the time of AP's report, the latter facility had just 
received labor rights certification from Worldwide Responsible 
Accredited Production (WRAP),\29\ a U.S.-based, industry-funded 
auditing and certification body that is utilized by numerous apparel 
brands and retailers. Despite the negative publicity arising from the 
AP story, and despite the fact that the facility inside the internment 
camp had recently been featured on Chinese national television in a 
program touting the internment camps as centers of vocational training 
and Uyghur social uplift, WRAP and the factory's customers had no 
trouble immediately finding multiple social auditors willing to conduct 
audits and issue favorable reports declaring the company to be free of 
forced labor. One, the prominent Swiss auditing firm SGS, went so far 
as to affirmatively conclude that the workers at the facility adjacent 
to the camp enjoyed full respect for their right to organize and 
bargain collectively.\30\ The WRC asked WRAP what methods its auditors 
had used to enable workers at that facility to speak freely about their 
circumstances, given the severely repressive environment in the XUAR. 
WRAP's CEO replied that since the facility was not located immediately 
within the detention camp, our concerns about a repressive environment 
were ``misplaced.'' \31\
---------------------------------------------------------------------------
    \26\ Laura Murphy and Nyrola Elima, ``In Broad Daylight: Uyghur 
Forced Labour and Global Solar Supply Chains,'' Sheffield Hallam 
University Helena Kennedy Centre for International Justice, May 2021, 
https://www.shu.ac.uk/helena-kennedy-centre-international-justice/
research-and-projects/all-projects/in-broad-daylight; and Laura Murphy, 
Kendyl Salcito, Yalkun Uluyol, Mia Rabkin, et al., ``Driving Force: 
Automotive Supply Chains and Forced Labor in the Uyghur Region,'' 
Sheffield Hallam University Helena Kennedy Centre for International 
Justice, December 2022, https://www.shu.ac.uk/helena-kennedy-centre-
international-justice/research-and-projects/all-projects/driving-force.
    \27\ Dake Kang, Martha Mendoza, and Yanan Wang, ``US sportswear 
traced to factory in China's internment camps,'' Associated Press, 
December 17, 2018, https://apnews.com/e7c9af9654fa43ad958b2dc54895d42e.
    \28\ CBP, ``CBP Issues Detention Orders against Companies Suspected 
of Using Forced Labor,'' October 1, 2019, https://www.cbp.gov/newsroom/
national-media-release/cbp-issues-detention-
orders-against-companies-suspected-using-forced.
    \29\ WRC, ``Heitan Taida Apparel Co., LTD.,'' 2019, https://
www.workersrights.org/factory-
investigation/heitan-taida-apparel-co-ltd/.
    \30\ Amfori, ``Hetian Taida Apparel Co. Ltd.,'' March 21, 2019, 
https://www.workersrights.org/wp-content/uploads/2020/02/BSCI-Hetian-
Taida-20190313.pdf.
    \31\ Email on March 1, 2019, from Avedis Seferian, Chief Executive 
Officer at WRAP, to Scott Nova, Executive Director of the WRC.
---------------------------------------------------------------------------
    While the impossibility of conducting credible labor rights 
inspections within the XUAR is well established, a separate set of 
questions about social auditing arises with respect to the provision of 
the UFLPA that bans imports from factories outside the XUAR that 
utilize Uyghur workers transferred from the XUAR under the auspices of 
government authority. Compliance with this provision of the law 
requires that corporations prohibit their suppliers from involvement in 
labor transfers and requires that they have the capacity to verify that 
suppliers are obeying this requirement. Since labor transferred from 
the XUAR has been utilized by factories in many different parts of 
China--use of transferred Uyghur workers has been exposed in the supply 
chains of Apple and Nike, among other leading corporations \32\--it 
must be assumed that the risk of complicity in this forced labor scheme 
exists at virtually any production facility in the country. This gives 
rise to two questions: 1) are corporations importing goods into the 
U.S., made in part or in whole in any part of China, inspecting the 
relevant suppliers to ensure that no transferred labor is being 
utilized, and, if so, 2) what methods are their auditors using to 
overcome the obstacles to credible and effective inspections, given the 
prevailing climate of repression of rights of speech and assembly 
across China and the extremely sensitive nature of any discussion of 
Uyghur forced labor?
---------------------------------------------------------------------------
    \32\ Vicky Xiuzhong Xu et al., ``Uyghurs for sale: `Re-education', 
forced labour and surveillance beyond Xinjiang,'' Australian Strategic 
Policy Institute, 2020, https://www.aspi.org.au/report/uyghurs-sale.
---------------------------------------------------------------------------
    There is a notable dearth of public information that speaks to 
these urgent questions. Most corporations sourcing from China are 
publicly silent on how they are complying in this area. And we are 
unaware of any auditing firm that has provided any transparency as to 
the methods it utilizes to verify compliance. We know from private 
discussions with corporations in several industries that some auditing 
firms are claiming they can verify the presence or absence of 
transferred labor and that such services are being utilized by a 
substantial number of corporations. It is unclear what percentage of 
corporations in various sectors are utilizing such services and it is 
unclear what methods the auditors are utilizing.
    In our opinion, especially given the powerful incentive any 
supplier using transferred labor has to hide the practice, reliably 
detecting the presence of transferred Uyghur labor requires the use of 
methods beyond those normally employed by social auditors. This 
includes gathering information from a facility's employees offsite, 
without the knowledge of factory management, and gathering information 
from people not employed by a facility but living or working in its 
vicinity, who may have observed the presence of transferred workers. 
Interviewing workers onsite, a dubious method of gathering information 
under the best of circumstances, is useless in this context. It is 
inconceivable that any Han Chinese worker is going to tell an auditor, 
in a conversation arranged by factory managers, and occurring inside 
the workplace, that Uyghur workers are present at the facility and that 
management is hiding them. While rigorous review of factory records may 
be sufficient in some cases to expose the presence of transferred 
labor, there is a long history in China of the use of false records to 
fool social auditors,\33\ a problem our organization has encountered in 
our own factory investigations in China in the past.\34\ If the number 
of transferred Uyghur workers at a facility is small relative to the 
size of the overall workforce, it would not be difficult in most cases 
for managers to provide altered records that obscure their presence. It 
is therefore unlikely that auditing methods that rely solely on records 
review, traditional worker interview methods, and interviews with 
management can serve as a reliable mechanism for detecting transferred 
labor across a corporation's Chinese supply chain, even if the review 
of records and questions for managers are specifically designed to 
enable auditors to do so. However, based on the limited information 
available, it is our understanding that few, if any, auditors are using 
offsite interviews and other alternate methods of investigation.
---------------------------------------------------------------------------
    \33\ Lauren Foster and Alexandra Harney, ``Doctored records on 
working hours and pay are causing problems for consumer multinationals 
as they source more of their goods in Asia,'' Financial Times, April 
22, 2005; Kathy Chu, ``Some Chinese factories lie to pass Western 
audits,'' USA Today, April 30, 2012; Alexandra Harney, The China Price: 
The True Cost of Chinese Competitive Advantage, New York: Penguin 
Press, 2008, p.200; and Dexter Roberts and Pete Engardio, ``Secrets, 
lies, and sweatshops,'' Business Week, November 17, 2006, http://
www.nbcnews.com/id/15768032/ns/business-us_business/t/secrets-lies-
sweatshops.
    \34\ WRC, ``Worker Rights Consortium Assessment re Lianglong Socks 
Co. Ltd (China): Findings, Recommendations and Status Report,'' April 
3, 2008, https://www.workersrights.org/wp-content/uploads/2016/02/
Lianglong_Socks_Report_4-3-08.pdf.
---------------------------------------------------------------------------
    There is another obstacle to effective audits: the Chinese 
government, in policy and practice, is actively seeking to undermine 
the ability of auditors to expose labor rights abuses at facilities in 
China producing for export. In 2021, the government enacted statutes 
designed to counteract the efforts of China's trading partners to hold 
Chinese suppliers accountable for the use of forced labor and other 
labor rights abuses.\35\ The effect of this law is to subject companies 
doing business in China to sanctions for taking actions that advance 
the implementation and enforcement of the UFLPA and any other law or 
policy designed to hold importers accountable for the use of forced 
labor by their Chinese suppliers. The government has also targeted 
major brands that are known to be working to comply with the U.S. 
Government's requirements concerning the XUAR and Uyghur forced labor. 
Most prominently, the government launched a de facto consumer boycott 
of H&M, a massive buyer of apparel from Chinese suppliers and a company 
with major ambitions as a retailer in the country--with devastating 
impact on H&M's Chinese sales.\36\ The Chinese government is also 
specifically targeting auditing firms and their Chinese personnel 
involved in efforts by buyers to verify forced labor-related compliance 
by Chinese suppliers \37\--actions presumably designed to show auditors 
that successful efforts to identify forced labor place them at severe 
personal risk. This legal and practical crackdown on labor rights 
inspectors working for foreign buyers is also likely to impede another 
form of auditing highly relevant to UFLPA compliance: audits designed 
to assess whether suppliers have adequate administrative mechanisms in 
place to verify the source of the inputs they utilize and to spot check 
whether the sub-suppliers a supplier reports are actually the source of 
the inputs in question (this includes so-called ``supply chain due 
diligence audits'' and ``traceability audits'').
---------------------------------------------------------------------------
    \35\ Tatman R. Savio, Mahmoud (Mac) Fadlallah, Shiva Aminian, 
Jingli Jiang, Bodi Jia, and Daniel L. Cohen, ``The New PRC Anti-Foreign 
Sanctions Law,'' Akin Gump Strauss Hauer & Feld LLP, July 2, 2021, 
https://www.akingump.com/en/insights/alerts/the-new-prc-anti-foreign-
sanctions-law.
    \36\ Bloomberg News, ``China Canceled H&M. Every Other Brand Needs 
to Understand Why,'' March 14, 2022, https://www.bloomberg.com/
graphics/2022-china-canceled-hm/.
    \37\ CECC, Annual Report 2022, November 2022, p.256-271, https://
www.cecc.gov/sites/chinacommission.house.gov/files/
2022_CECC_Report_0.pdf.
---------------------------------------------------------------------------
    Given that precise control of the supply chain, including the 
exclusion of suppliers implicated in forced labor, is essential to a 
corporation's ability to comply with the UFLPA, impediments to this 
form of auditing carry enormous compliance risks.
    An important window into the effectiveness of social auditing, in 
the present context, at detecting forced labor in China is provided by 
the work of The Outlaw Ocean Project, a journalistic enterprise that 
conducts extensive investigations of forced labor and other rights 
abuses in fishing and seafood processing. In investigations reported in 
the fall of 2023, The Outlaw Ocean Project uncovered multiple instances 
of social audits failing to identify state-imposed forced labor in 
seafood processing facilities in China suppling U.S. firms.\38\ All ten 
seafood processors that The Outlaw Ocean Project linked to Uyghur 
forced labor were certified by the Marine Stewardship Council (MSC) and 
four were certified by the Aquaculture Stewardship Council (ASC), 
certification bodies that rely on social audits to verify labor rights 
compliance. In response to the investigation's findings, MSC 
acknowledged that its reliance on social audits has ``significant 
limitations.'' In March 2024, after the publication of the 
investigation, ASC said it intended to ``phaseout program operations 
and cease investment in China''; at the time it had 289 certified 
companies in China.\39\
---------------------------------------------------------------------------
    \38\ Outlaw Ocean Project, ``China: The Superpower of Seafood,'' 
October 9, 2023, accessed 
April 23, 2024, https://www.theoutlawocean.com/investigations/china-
the-superpower-of-seafood/
findings/.
    \39\ Neil Ramsden, ``Aquaculture Stewardship Council to cease 
operations in China,'' Undercurrent News, March 27, 2024, https://
cdn.theoutlawocean.com/investigations/china/pdf/coverage/
undercurrent-news_aquaculture-stewardship-council-to-cease-operations-
in-china.pdf.
---------------------------------------------------------------------------
    The Outlaw Ocean Project reported that social audits are normally 
announced, which allows workplaces to hide Uyghur workers in advance of 
the audits, and ``[e]ven if they get to interview these workers, 
auditors aren't trained to identify state-imposed forced labor, and 
workers are reluctant to be candid for fear of retribution.'' \40\ Most 
seafood buyers nonetheless relied on audits to defend themselves in 
their responses to the investigation, ``many asserting that audit 
reports proved there was no forced labor at the implicated factories.'' 
In one case, the investigation found evidence of Uyghurs working at a 
plant the same day an audit was conducted by SGS that gave the site a 
passing grade.\41\
---------------------------------------------------------------------------
    \40\ Outlaw Ocean Project, ``China: The Superpower of Seafood,'' 
October 9, 2023, accessed 
April 23, 2024, https://www.theoutlawocean.com/investigations/china-
the-superpower-of-seafood/
findings/.
    \41\ Magali Dauwalder, Global Head of Corporate Affairs at SGS, 
told The Outlaw Ocean Project: ``The audit SGS carried out was a 
traceability audit. This audit is not a social audit. It doesn't cover 
working conditions.'' See: The Outlaw Ocean Project, ``SGS S.A.: 
Correspondence,'' June 26, 2023, https://www.theoutlawocean.com/
investigations/china-the-superpower-of-seafood/discussion/stakeholders/
sgs-sa/; and Ian Urbina, ``The Uyghurs Forced to Process
the World's Fish,'' The Outlaw Ocean Project, October 9, 2023, https://
www.theoutlawocean.com/
investigations/china-the-superpower-of-seafood/the-uyghurs-forced-to-
process-the-worlds-fish/.
---------------------------------------------------------------------------
    Sedex, a widely utilized auditing platform, continues to allow its 
``SMETA'' assessment tool to be used in audits across China, even while 
refraining from providing assurances that SMETA is sufficient to detect 
forced labor. In response to a question from The Outlaw Ocean Project, 
Sedex stated:

        ``Forced labour is notoriously difficult to identify and 
        evidence given it is a criminal activity. Instances of forced 
        labour--and sometimes particular practices/behaviours 
        associated with higher risks of forced labour, such as those 
        outlined in the ILO indicators--are often driven underground. 
        The SMETA audit methodology includes assessment points relating 
        to these indicators, and there is a ``sensitive issues'' 
        process that allows auditors to raise particularly sensitive 
        concerns immediately and confidentially with the site's 
        customers, allowing quick mitigation and remediation action. 
        However, behaviours may still be covered up and therefore 
        extremely difficult for auditors to find. Auditors cannot make 
        serious allegations of criminal activity without clear evidence 
        ( . . . ) There are many regional-specific considerations in 
        how to conduct effective supply chain human rights and 
        environmental due diligence. We are aware of reported 
        challenges in conducting supply chain due diligence and onsite 
        audits within some high-risk regions, including constraints on 
        access by independent auditors, that make obtaining reliable 
        information by any safe and ethical means difficult. These 
        challenges don't detract from SMETA's effectiveness in other 
        contexts.'' \42\
---------------------------------------------------------------------------
    \42\ The Outlaw Ocean Project, ``Supplier Ethical Data Exchange 
(Sedex),'' June 28, 2023, https://www.theoutlawocean.com/
investigations/china-the-superpower-of-seafood/discussion/stakeholders/
supplier-ethical-data-exchange-sedex/.

    A month later Sedex acknowledged: ``we recognise it may be 
difficult and risky for auditors themselves to explicitly recognise 
state-imposed forced labour in practice.'' \43\
---------------------------------------------------------------------------
    \43\ The Outlaw Ocean Project, ``Supplier Ethical Data Exchange 
(Sedex),'' July 20, 2023, https://www.theoutlawocean.com/
investigations/china-the-superpower-of-seafood/discussion/stakeholders/
supplier-ethical-data-exchange-sedex/.
---------------------------------------------------------------------------
    For all of the reasons discussed above, corporations sourcing from 
China face a severe UFLPA compliance dilemma, even if they have 
undertaken a faithful effort to exclude inputs from the Uyghur Region 
from their supply chains. While compliance with the UFLPA does not 
require labor rights auditing to be feasible within the XUAR, the law's 
ban on products made with transferred Uyghur labor elsewhere in China, 
its ban on products made by companies found to have been complicit in 
forced labor (those on the UFLPA-mandated ``Entities Lists''),\44\ and 
the need to verify suppliers' claims that they are not using inputs 
from the XUAR, all require a capacity to conduct reliable workplace 
audits across the rest of China. Given the weaknesses of social 
auditing worldwide; given the gauntlet of obstacles--longstanding and 
new--specific to effective social auditing in China; and given the 
track record to date; the capacity of corporations sourcing from China 
to ensure that they are complying with the UFLPA and Section 307 of the 
Tariff Act is in grave doubt. Assuming that this capacity actually 
exists would be folly. The U.S. Government should be asking 
corporations importing goods into the U.S., made in whole or in part by 
suppliers in China, to affirmatively demonstrate that they have viable 
methods and systems in place to ensure that the products they are 
importing were not sourced from the XUAR, were not made by workers 
transferred from the XUAR, and were not touched by any company on the 
Entities Lists. The leaders of any corporation that cannot so 
demonstrate must then explain how they know, on any given day, with 
respect to any given import, that they are not breaking the law.
---------------------------------------------------------------------------
    \44\ DHS, ``UFLPA Entity List,'' Updated December 8, 2023, accessed 
April 29, 2023, https://www.dhs.gov/uflpa-entity-list.

---------------------------------------------------------------------------
    The WRC recommends that Congress:

      Hold hearings in which it asks the executives of leading 
social auditing firms and certification bodies active in China to 
disclose the methods they use to verify compliance with provisions of 
the UFLPA that require workplace-level labor rights inspections, 
explain why those methods should be viewed as reliable given the 
relevant circumstances, and provide examples of their effectiveness.

      Hold hearings in which it asks executives of leading 
brands in the auto, solar, primary metals, and apparel sectors these 
same questions.

      Request that CBP revise and upgrade the methodological 
standards it cites in its recommendations to importers concerning the 
use of audits; the current guidance \45\ is silent, for example, on the 
value of onsite worker interviews in workplaces in China.
---------------------------------------------------------------------------
    \45\ CBP, ``Uyghur Forced Labor Prevention Act: U.S. Customs and 
Border Protection Operational Guidance for Importers,'' June 13, 2022, 
p. 15, https://www.cbp.gov/sites/default/
files/assets/documents/2022_Jun/
CBP_Guidance_for_Importers_for_UFLPA_13_June_
2022.pdf.


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        Prepared Statement of Jim Wormington, Human Rights Watch

    Dear Congressman Smith, Senator Merkley, honorable Members of the 
Commission, thank you for the invitation to appear before you today.

The Car Industry Illustrates the Links between Global Supply Chains and 
   Forced Labor in Xinjiang

    The essential context for this hearing is the longstanding 
connection between major global industries and the Chinese government's 
human rights violations, including state-imposed forced labor programs 
targeting ethnic Uyghur and other Turkic groups. Human Rights Watch and 
other organizations have documented the links between forced labor 
programs in the Xinjiang Uyghur Autonomous Region (the Uyghur Region, 
or Xinjiang) and global supply chains, from the cotton in clothes and 
textiles, the polysilicon in solar panels, to the minerals and metals 
in both electric and gas-powered cars.
    The car industry provides a compelling example of the links between 
global supply chains and the Chinese government's abuses in Xinjiang. 
Domestic and foreign manufacturers in China produced and exported more 
cars than any other country in the world in 2023. Chinese companies 
also produce and export billions of dollars of parts used by global 
carmakers, from electric vehicle batteries to alloy wheels. Many of the 
industry's biggest brands use China as a manufacturing and supplier 
base, a vital sales market, or both.
    Companies manufacturing cars or sourcing parts from China risk 
exposure to the government's forced labor programs. Human Rights Watch 
released a report in February 2024 describing the links between 
aluminum, a vital material for car manufacturing, and forced labor in 
Xinjiang. Close to 10 percent of global aluminum is produced in 
Xinjiang, and our research showed that aluminum producers in the 
region, and the coal mines and coal plants that supply them, have 
participated in coercive labor transfers, a form of state-imposed 
forced labor. Aluminum from Xinjiang is shipped out of the region, 
melted down, and used to make aluminum alloys and aluminum products and 
is used by car manufacturers and other industries. International 
commodities traders also continue to purchase and trade aluminum from 
Xinjiang, further obscuring the links between Xinjiang and global 
supply chains.
    Global carmakers are currently doing too little to address the risk 
of Uyghur forced labor in their aluminum supply chains. In our February 
2024 report, we examined the aluminum sourcing policies and practices 
of five major carmakers--BYD, General Motors, Tesla, Toyota, and 
Volkswagen. We found problems in all five companies' sourcing 
practices, ranging from a lack of knowledge of the origin of the 
aluminum in their cars to a failure to take responsibility for joint 
ventures' sourcing practices.
    Volkswagen, for example, which holds 50 percent of the equity in 
its joint venture with SAIC, a Chinese state-owned carmaker, has sought 
to downplay its responsibility for human rights impacts in its joint 
venture's supply chain. Volkswagen contends that, under German law, the 
company is only legally required to address human rights impacts in the 
supply chains of subsidiaries in which it has ``decisive influence,'' 
which it says excludes SAIC-VW.
    German government guidance, however, sets out a range of criteria 
for determining whether a company has ``decisive influence,'' including 
``whether the subsidiary manufactures and exploits the same products or 
provides the same services as the parent company.'' SAIC-Volkswagen 
manufactures cars for the Chinese market under the Volkswagen brand. 
The law also applies to Volkswagen's direct suppliers, which could 
include SAIC-Volkswagen.
    Companies in joint ventures also have a responsibility under the 
United Nations Guiding Principles on Business and Human Rights (the 
``UN Guiding Principles'') to use their leverage to address the risk of 
forced labor in the joint venture's supply chain. Volkswagen has said 
the company ``assumes responsibility . . . to use its leverage over its 
Chinese joint ventures to address the risk of human rights abuses.'' 
But when asked about potential links between SAIC-Volkswagen and an 
aluminum producer in Xinjiang, Volkswagen responded: ``We have no 
transparency about the supplier relationships of the non-controlled 
shareholding SAIC-Volkswagen.''
    General Motors and Toyota, which also operate through joint 
ventures in China, did not provide written responses to our questions 
about their oversight of Chinese joint ventures, supply chain mapping, 
or the origin of their aluminum. General Motors instead said, ``GM is 
committed to conducting due diligence and working collaboratively with 
industry partners, stakeholders, and organizations to address any 
potential risks related to forced labor in our supply chain.'' BYD also 
did not respond to questions about its efforts to address forced labor 
in its supply chain.
    Tesla, which builds cars for China's domestic market and for export 
at its Shanghai Gigafactory, said that it had ``in several cases'' 
mapped its aluminum supply chain and had not found evidence of forced 
labor. However, the company did not specify how much of the aluminum in 
its cars remains of unknown origin.
    Our research concluded that all five companies need to do more to 
map their supply chains for aluminum parts and identify and address 
potential links to Xinjiang. Confronted with an opaque aluminum 
industry and the threat of Chinese government reprisals for 
investigating links to Xinjiang, carmakers in many cases remain unaware 
of the extent of their exposure to forced labor.

Credible Social Auditing Is Not Possible in Xinjiang

    The term social audits refers to a broad range of third-party 
inspections that purport to assess a company's compliance with 
specified human rights, labor, or environmental standards. The term is 
frequently used to refer to factory audits designed to assess labor 
conditions at the facility under inspection.
    The risk of links to Uyghur forced labor in supply chains has led 
some companies, in the car industry and other sectors, to look to 
social audits to investigate labor conditions at factories in Xinjiang. 
Volkswagen, for example, in 2023 commissioned an audit of the risk of 
forced labor at the Xinjiang plant operated by a subsidiary of SAIC-
Volkswagen.
    The inherent limitations of social audits, however, and the threats 
to auditors and workers in Xinjiang, mean that companies should not 
commission or rely on audits in the region.
    Human Rights Watch and other organizations have documented the 
limitations of factory audits in identifying labor abuses, including 
forced labor globally. Common problems include the inadequate time on 
the ground to conduct the audit; the failure to interview workers 
offsite in safe settings; conflicts of interest between the audit firm 
and paying clients; and successful efforts to deceive auditors by 
hiding actual working conditions.
    The inherent problems of factory audits are exacerbated in 
Xinjiang, where the Chinese government's brutal repression means there 
is no valid means to verify that any workplace in the region is free of 
forced labor. Threats to workers in Xinjiang mean that interviews with 
workers, which are essential to the methodology of any labor or human 
rights investigation, cannot generate reliable information. The 
government's use of extrajudicial detention, torture, and enforced 
disappearance, as well as mass and intrusive surveillance, means any 
victim of forced labor would and should assume that providing truthful 
testimony to an auditor would result in government retaliation. At 
least five international audit firms had by 2020 determined they would 
no longer conduct audits in Xinjiang.
    Volkswagen's 2023 audit of the Xinjiang plant, overseen by a firm 
run by Markus Loning, Germany's former commissioner for human rights, 
exemplifies the pitfalls of auditing in Xinjiang. Loning said in 
December 2023, when the audit was released, that ``we could not find 
any indications or evidence of forced labor'' at the plant and stated 
that ``we conducted 40 interviews and were able to freely inspect the 
factory.'' He later admitted, however, that the main basis for the 
audit, which was conducted by a Shenzhen law firm with support from 
Loning, had been a review of documentation rather than interviews, 
which he said could be ``dangerous.'' He also said that ``even if they 
[workers] would be aware of something, they cannot say that in an 
interview.''
    Despite these flaws, the release of the Volkswagen audit resulted 
in MSCI, a financial rating agency, removing a ``red flag'' rating for 
the company's stock. On March 12, 2024, and following the release of 
the audit report, Human Rights Watch and 61 Uyghur, human rights, and 
labor organizations issued a statement calling on consultancies and 
auditors to immediately cease providing services in the Xinjiang Uyghur 
Autonomous Region. The statement also called on companies not to 
commission audits in the region, to exit the Uyghur Region at every 
level of their supply chains, and cease doing business with suppliers 
implicated in Uyghur forced labor.

Supply Chain Due Diligence Audits throughout China Are Highly 
   Problematic

    Stopping the use of audits at factories in Xinjiang is not, 
however, enough to address the role of audits in enabling links between 
global supply chains and Uyghur forced labor. Other organizations have 
documented how audits in other regions of China, including in the 
seafood industry, have failed to identify the presence of Uyghur forced 
labor at factories. In addition, companies frequently use ``supply 
chain due diligence'' audits of suppliers outside Xinjiang as a tool to 
verify whether suppliers have processes in place to avoid sourcing 
materials or products from Xinjiang and other high-risk regions. Supply 
chain due diligence audits, however, are still constrained by the 
threat of Chinese government reprisals against auditors or their 
sources, creating obstacles for auditors seeking to safely investigate 
companies' supply chain links to forced labor.
    Supply chain due diligence audits, rather than looking at labor 
conditions at the supplier's factory, instead or in addition consider 
whether the company has adequate responsible sourcing policies and 
practices to identify the source of its materials and products and to 
address the most important human rights and environmental risks in its 
supply chain. The audits frequently assess companies against supply 
chain due diligence standards such as the Organisation for Economic Co-
operation and Development (OECD)'s Due Diligence Guidance for 
Responsible Business Conduct and the OECD Due Diligence Guidance for 
Responsible Supply Chains of Minerals from Conflict-Affected and High-
Risk Areas.
    The Chinese government's hostility to scrutiny of its treatment of 
Uyghurs makes it difficult for auditors conducting supply chain due 
diligence audits to investigate whether companies are effectively 
identifying and eliminating potential supply chain links to Xinjiang. 
The government has harassed companies or individuals that assist 
businesses to investigate their potential links to human rights abuses 
in China, including forced labor in Xinjiang. In March 2023, Chinese 
police closed the Beijing office of the consulting firm Mintz and 
detained five of its Chinese staff for questioning. Media reported that 
Mintz had conducted corporate due diligence work related to forced 
labor and supply chains in Xinjiang. In April 2023, a state news report 
stated that national security officials had penalized a Chinese 
national under counter-espionage laws for assisting a nongovernmental 
organization in labor rights investigations related to Xinjiang. 
Executives at other consulting firms told reporters in May 2023 that 
the government has warned them against conducting due diligence work 
related to Xinjiang.
    The Chinese government in April 2023 also passed an expanded 
counter-espionage law that experts have warned could increase the 
government's power to investigate and prosecute foreign firms 
conducting research on local markets and business partners. In 2021, 
the Chinese government also enacted several anti-sanctions laws that 
could put companies with assets and personnel inside China at risk of 
sanction from Chinese regulators--or subject to civil liability--for 
taking actions to implement foreign laws such as the Uyghur Forced 
Labor Prevention Act. Companies are also concerned that, were their 
efforts to tackle forced labor in Xinjiang to become public, their 
business might be boycotted by Chinese consumers. In 2021, the decision 
by clothing company H&M to stop using cotton from Xinjiang led to its 
removal from Chinese online retail platforms as well as attacks on 
social media.
    Human Rights Watch's research on aluminum illustrates the 
limitations of audits in assessing whether Chinese suppliers are 
sourcing responsibly and avoiding the risk of links to Uyghur forced 
labor. Our research examined in detail the Aluminium Stewardship 
Initiative (ASI), an audit program that assesses and ``certifies'' 
suppliers against social and environmental standards, including their 
responses to forced labor. Several car companies, including BMW, 
Mercedes, Tesla, and Volkswagen, refer to suppliers' audits under ASI 
as part of their efforts to source aluminum responsibly. ASI has not 
certified smelters in Xinjiang, but it has given manufacturers of 
aluminum products elsewhere in China a passing grade for their sourcing 
practices even where evidence suggests that those companies may have 
sourced aluminum from Xinjiang.
    Chalco Ruimin, a subsidiary of state-owned aluminum producer 
Chinalco, is one of the companies certified by ASI. Chalco Ruimin's 
products include aluminum alloys and sheets for the automotive 
industry. There is evidence that Chalco Ruimin has sourced aluminum 
from Xinjiang. Xinjiang Zhonghe, a Xinjiang-based smelter, stated in 
2021 and 2022 that it supplies aluminum products to Chalco Ruimin. 
Xinjiang Zhonghe stopped disclosing its downstream customers in 2023. 
As a member of the Chinalco group, Chalco Ruimin may also source 
aluminum from other Chinalco entities. Chinalco's trading arm has 
purchased aluminum from Xinjiang.
    Although ASI's audit standards include criteria assessing 
companies' human rights and supply chain due diligence, the summary 
audit reports certifying Chalco Ruimin against ASI's standards 
contained no reference to Uyghur forced labor. ASI told Human Rights 
Watch that the auditor found ``no critical human rights issues 
regarding child labor or forced labor'' and stated that ``Specific 
reference to `Uyghur forced labor' was likely not incorporated in the 
audit report due to political sensitivities in China on this specific 
issue.'' The Chalco Ruimin policies that the auditors relied on to 
assess the company's sourcing, including the company's human rights 
impact assessment, also contained no reference to Uyghur forced labor 
and very little detail on how the company maps its supply chain to 
identify human rights risks.
    The failure of both the summary audit report and the company's 
underlying sourcing policies to explicitly address the risk of Uyghur 
forced labor exemplifies the limitations of auditing in China. Kendyl 
Salcito, an aluminum industry expert who sits on ASI's Standards 
Committee and whose nongovernmental organization, NomoGaia, co-authored 
a Sheffield Hallam University report on Uyghur forced labor in 
automotive supply chains, told Human Rights Watch that using the 
political sensitivity of China's violations in Xinjiang as a reason not 
to discuss forced labor in audit reports ``gives the Chinese government 
carte blanche to quash discussion of abuses in the Uyghur region. If 
auditors can't document links between aluminum producers and forced 
labor, how can ASI credibly claim to be auditing forced labor risks?'' 
Salcito acknowledged ASI is in a ``difficult position,'' because 
China's dominant role in primary aluminum production means that, ``in 
order to be globally relevant, ASI needs to engage with Chinese 
operators,'' but expressed concern that the challenges of auditing in 
China, especially the Chinese government's hostility to auditors or 
auditees discussing Uyghur forced labor, made it very difficult for ASI 
to credibly assess whether Chinese companies are taking adequate steps 
to eliminate links to Xinjiang.
    ASI, in response to Human Rights Watch's reporting on aluminum and 
Xinjiang, stated in February 2024 that it ``firmly rejects HRW's 
characterization of ASI as a `flawed' scheme with a failure to 
meaningfully investigate . . . risks of links to forced labour.'' ASI 
acknowledged that, ``auditing human rights risks in many contexts is 
challenging,'' but stated ``that doesn't make the process `inherently 
flawed' or worthless. The alternative is either nothing, or some other 
process of inquiry which will face the same challenges.'' ASI also 
noted that the companies referenced in Human Rights Watch's report were 
willing to be subject to follow-up audits in 2024 and that the auditors 
in question had been informed of Human Rights Watch's concerns on 
forced labor.

Audits Are Not a Solution to Forced Labor

    The limitations of social audits, the impossibility of conducting 
audits in Xinjiang, and the growing concerns about the obstacles to 
credible audits in the rest of China mean that companies should not 
rely on audits either as evidence of the absence of forced labor at 
specific factories or as proof that a supplier is sourcing responsibly. 
Companies should instead map their supply chains and responsibly 
disengage from joint ventures, subsidiaries, or suppliers who continue 
to operate in or source materials or products from Xinjiang.
    The continued links, however, between car companies and forced 
labor in Xinjiang, including the problematic role of audits in 
obscuring forced labor risks, makes it vital to increase congressional 
and executive oversight over the auditing and automotive industry.

    To that end, Human Rights Watch respectfully urges that Congress:

      Hold hearings requesting that executives at major audit 
firms and certification schemes testify about the challenges of 
auditing in China, including but not exclusively in Xinjiang, and 
describe the efforts they are taking to ensure that their audits are 
not used to obscure or enable links to forced labor and other human 
rights violations in China.

      Hold hearings requesting that car company executives 
testify about the risk of Uyghur forced labor in their supply chains, 
including their joint ventures, and their efforts to respond to that 
risk. These hearings could build on the Senate Finance Committee's 
ongoing investigation into links to Uyghur forced labor and global 
carmakers.

      Hold hearings requesting that executives at major 
international commodities traders, including Glencore and Trafigura, 
testify about whether their firms source aluminum and other materials 
in Xinjiang, as well as other areas with high risk of links to human 
rights abuses, and the efforts the traders take to address the risk 
that they are purchasing and selling materials or products linked to 
forced labor and other human rights abuses.

      Write to the Forced Labor Enforcement Task Force to 
request that it make aluminum a ``high-priority sector'' under the 
Uyghur Forced Labor Prevention Act.

      Enact legislation that requires companies sourcing 
materials with a high risk of links to Xinjiang, such as cotton, 
polysilicon and aluminum, to disclose their supply chains at the raw 
material level to demonstrate that they are sourcing from outside 
Xinjiang.

                 Prepared Statement of Hon. Chris Smith

    Good morning, and welcome to today's hearing, which will look at 
the use of so-called ``social audits'' by companies whose supply chains 
originate in the People's Republic of China to cover up the existence 
of forced labor in those supply chains.
    Back in the early 2000's, I read a book called IBM and the 
Holocaust: The Strategic Alliance Between Nazi Germany and America's 
Most Powerful Corporation. I recall how shocked I was at the time at 
what the book revealed about an American corporation's complicity in 
aiding and abetting the Nazi regime, placing bottom-line greed over 
concern for humanity and turning a willing blind eye to the 
implications of their work.
    Nor was IBM alone in this--books have been written about the ties 
the white-shoe law firm Sullivan & Cromwell had with the Nazis, for 
example. But I took some comfort in knowing that that was in the past.
    Surely if there were evidence today of an evil regime's abuse of 
human rights--for example, the mass-scale detention of a despised 
ethnic and religious minority in concentration camps, forcing them to 
toil as practical slaves to produce goods for export--American 
corporations would shudder and shun any complicity with that.
    Fast forward to today, however, and that is precisely what we see--
corporate complicity in the grossest of human rights violations. Our 
last hearing revealed, for example, how Thermo Fisher Scientific, whose 
DNA markers have been used by police in the Tibet and Xinjiang 
Autonomous Regions to compile databases of the DNA of millions of 
Tibetans and Uyghurs, has also been implicated in the forced harvesting 
of human organs.
    While Thermo Fisher Scientific may be the corporation whose 
behavior most closely mimics that of IBM before the beginning of the 
Second World War, our hearing today focuses on those manufacturers, 
suppliers, importers, and retailers whose supply chains in China are 
tainted by reliance upon forced labor to achieve the lowest prices, yet 
who rely on social auditing companies to obscure and whitewash that 
reliance.
    We have known about corruption in the audit industry for a long 
time. Back in July 2012, I held a hearing where Li Qiang, the founder 
of China Labor Watch, testified as to audits. He said not only are 
audits conducted in China ineffective, but he said ``they are actually 
corrupt.'' He went through examples of how auditors for corporations 
such as Apple ignored unfavorable facts, such as with regard to in-
adequate worker safety processes. He gave several examples of the 
bribing of auditors so that auditors' reports would not require the 
investment of millions in improving conditions in factories and plants.
    Today, using the fig leaf that audits provide, corporations seek to 
convince consumers, regulators, and perhaps even their own consciences 
that their supply chains are clean and compliant with U.S. law, 
including the provisions of the Uyghur Forced Labor Prevention Act, or 
UFLPA, and section 301 of the Trade Act, both of which prohibit the 
importation of goods made with forced labor.
    In a nutshell, however, as our witness Scott Nova will testify, 
``Social auditing, in practice, involves giving unqualified people 
inadequate time to pursue an unrealistic objective they have no 
incentive to achieve.''
    In a country such as the People's Republic of China, where 
independent labor unions do not exist, social controls prevent the free 
exchange of information, and recently passed national security laws 
make the disclosure of information that portrays China in a bad light a 
national security offense, social audits are particularly laughable.
    But beyond aiding and abetting the human rights abuse that forced 
labor entails, companies whose supply chains are tainted also undercut 
American manufacturers at home, such as in the textile industry, whose 
ability to produce quality goods at an affordable price is undercut by 
importers who drive costs down by essentially utilizing slave labor. 
Such labor may come from prisons in the Chinese laogai system, or from 
Uyghurs detained in so-called ``Vocational Skills Education and 
Training Centers,'' or otherwise assigned by Poverty Alleviation 
Through Labor Transfer programs to toil elsewhere in China.
    These corporations profit from the sweat of the brows of Uyghurs 
and other labor abuse victims in China, while beggaring their fellow 
Americans seeking to earn a decent wage in factories in the United 
States.
    I look forward to hearing our witnesses expose the deception 
inherent in the use of social audits to whitewash corporate complicity 
in labor rights abuse.
    I would like to receive input on regulatory and legislative gaps 
that they think need to be plugged. I also would like to hear their 
thoughts in particular on enforcement of existing legislation, like the 
UFLPA, and I also would like to suggest that our securities laws--in 
particular, our 1934 Securities Exchange Act, and Rule 
10b-5 promulgated under it--be put to greater use. That rule, as people 
are aware, prohibits ``any untrue statement of material fact,'' as well 
as any omission of material fact.
    As we go through the annual reports and offering statements of 
publicly traded corporations, we should ask whether they are disclosing 
to their shareholders, and potential shareholders, that their supply 
chains may indeed be compromised by forced labor, in violation of U.S. 
law. Are they disclosing the potential loss of goodwill and harm to 
reputation which a company revealed to be benefiting from forced labor 
in their supply chain may undergo, to the detriment of share price?
    To date, many corporations seem to be relying on these social 
audits to shield themselves from potential liability--social audits 
that today's hearing, along with the good work that has been done by 
several of our witnesses, will show to be works of near fiction when it 
comes to accurately portraying the state of labor in the People's 
Republic of China.
    Compliance departments take note. As well as the law and accounting 
firms that sign off on corporate disclosures.
    Following this hearing, I intend to write to the Securities and 
Exchange Commission--and I invite my Commissioner colleagues to join 
me--to ask that the SEC review disclosures by publicly traded companies 
to assess whether they contain any material misstatements or omissions 
with regard to forced labor in their supply chains--and if they do, to 
take enforcement action against them, levying fines.
    While the SEC proposed rules in May 2022 to clarify how investment 
funds may promote adherence to voluntary ``Environmental, Social, and 
Governance,'' or ESG, standards--another fig leaf utilized by 
corporations to signal their virtue to consumers but which remain 
untethered to objective criteria--this is only a tentative first step 
that emphasizes the ``E'' in ESG and is addressed to investment funds, 
doing little to confront the issue of forced labor in supply chains.
    Further, if corporations are not policing themselves, and the SEC 
is slow in responding, then I hope the plaintiffs' bar will help 
discipline these companies seeking to recover any loss in shareholder 
value that results from the exposure of corporate audit-washing.
    Finally, I also anticipate a future hearing wherein we invite 
auditing companies, such as the Loning company implicated in the 
Volkswagen scandal that we will hear about shortly, as well as 
whistleblowers and lowest-price retailers such as Walmart, to testify.
                                 ______
                                 

                Prepared Statement of Hon. Jeff Merkley

    Thank you, Chairman Smith, for scheduling this important hearing. 
For two decades this Commission has reported on how the Chinese 
government's failure to provide basic human rights protections has had 
a detrimental effect on the lives of the people living in China.
    Today, we are focusing on the fact that this same lack of 
protection has a negative impact on American consumers. This is not a 
new story. We have known for years that substandard worker rights and 
lack of transparency in China have resulted in defective imports, such 
as lead-based toys used by American children.
    Our first witness, Deputy Undersecretary Thea Lee, who serves as a 
member of this Commission, has been a long-time expert and champion on 
this issue.
    Four years ago, this Commission, based on the research of another 
of our witnesses, Adrian Zenz, and others, published a report showing 
how products made with the forced labor of Uyghurs and other Turkic 
peoples in China were coming into the United States. The fruit of this 
research was the Uyghur Forced Labor Prevention Act, which banned 
imports of such goods and helped spark a much wider awareness of the 
need to rid our supply chains of forced labor.
    Key to the effort to know whether a supply chain is clean are the 
audits performed on the companies who are part of that chain. In 2021, 
the Biden administration issued the Xinjiang Supply Chain Business 
Advisory, which assessed that ``in and of themselves, third-party 
audits are not a sufficient due diligence program, and may not be a 
credible source of information for indicators of labor abuses in the 
region.'' With the enactment of our Uyghur Forced Labor Prevention Act, 
this warning became a hard reality for companies importing from China. 
They had to provide ``clear and convincing evidence'' that their 
products were not made with Uyghur forced labor.
    This is the core question for today's hearing: Are the audits that 
importers must cite to meet the law's standard reliable, do they have 
integrity, or are they even genuine? Are reliable audits even possible 
in an environment where the Chinese government does not allow workers 
to speak freely, harasses auditors conducting due diligence in 
Xinjiang, and prevents auditors from obtaining information needed for 
their job?
    If a company cannot say with precise certainty, to our government, 
to its shareholders, and most importantly to American consumers, that 
its products do not contain forced labor, then it needs to stop doing 
business there.
    Let's remember that our aim is not to punish companies simply 
because they do business in China. Our goal is to improve the human 
rights situation in China so that businesses can certify to us that 
their supply chain is free of forced labor and that their suppliers 
provide good working conditions and wages to their workers. And we ask 
these companies to partner with us in working toward that goal.
    We have an impressive set of witnesses and I look forward to 
hearing their analysis and recommendations.
    Thank you.
                                 ______
                                 

              Prepared Statement of Hon. James P. McGovern

    Good morning. I join my colleagues in welcoming our witnesses and 
the public to today's hearing on audits and certification of supply 
chains in China.
    This hearing continues the work the Congressional-Executive 
Commission on China has done to shine a light on the use of forced 
labor by the People's Republic of China and to ensure that Congress is 
doing everything it can to bring an end to the practice.
    We are motivated by the terrible toll of forced labor on those 
subjected to it, especially the Uyghur people of Xinjiang, and by its 
impact on Americans. U.S. consumers should not have to worry about 
whether the products they purchase are tainted by forced labor from 
China. U.S. workers and producers should not have to compete with 
companies that rely on forced labor.
    Congress took a major step in 2021 by passing the bipartisan Uyghur 
Forced Labor Prevention Act (UFLPA), legislation that I was privileged 
to lead. The UFLPA creates a rebuttable presumption that all goods 
produced in the Xinjiang region of China are made with forced labor. 
This means the burden of proof lies with those who want to import goods 
into the U.S. to show that their supply chains are free of forced 
labor.
    The logic behind the law was that it would create incentives for 
stakeholders, including the PRC, to change their practices. The good 
news is that companies have responded by implementing their economic, 
social, and governance, or ESG, policies and contracting social 
compliance audits to certify that the supply chains for their products 
are free of forced labor.
    The problem, as we will hear today, is that even when these audits 
conform with industry-wide ESG standards, they may not be reliable in 
the Chinese context. This is both because the companies themselves pay 
for the audits and have a financial stake in clean findings, and 
because the PRC, instead of correcting course and ending the use of 
forced labor, has chosen to retaliate against those who do the audits 
or who cooperate with the auditors.
    I want to be clear on this point: The PRC government could react to 
the worldwide concern that has been raised about its use of forced 
labor by taking the opportunity to end the practice--which, by the way, 
would be consistent with its obligations under International Labor 
Organization conventions, all of which China has ratified.
    Instead, since 2021 the PRC has adopted laws, regulations, and 
practices that seem designed to limit the effectiveness of social 
audits in detecting the presence of forced labor in supply chains.
    One example is an anti-foreign sanctions law that has been used at 
least once to go after a U.S. due diligence firm for collecting 
``Xinjiang-related sensitive information.'' A second is a broadened 
definition of espionage that came into play when PRC authorities 
detained staff at another due diligence firm that was reported to be 
conducting investigations into forced labor in supply chains linked to 
Xinjiang.
    Of 29 firms listed by Social Accountability International as 
qualified to conduct certification inspections of manufacturers in 
China, five have announced they will no longer conduct social audits in 
Xinjiang because conditions simply do not allow them to do so.
    In light of this, our question today is what more Congress can do 
to help reinforce the incentives in the UFLPA. Are there steps we could 
take to strengthen the integrity of auditing mechanisms and make them 
more independent? Are there other ways to foster increased transparency 
of supply chains that do not backfire on those who try to do the right 
thing?
    Let me close by emphasizing that we are not here to force companies 
to leave China (our consistent goal is to help improve the human rights 
situation in China), but there is a possibility that the PRC's response 
so far to the global condemnation of its use of forced labor could lead 
companies to decide on their own that it is too risky to do business in 
China because the lack of human rights protections doesn't allow them 
to reliably comply with their own ESG policies.
    Thank you.
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                          Witness Biographies

    Thea Lee, Deputy Undersecretary of Labor for International Affairs

    Thea Lee was named Deputy Undersecretary of Labor for International 
Affairs on May 10, 2021. She has been advocating for workers' rights, 
both domestically and internationally, for over thirty years. She was 
president of the Economic Policy Institute, a pro-worker Washington 
think tank, from January 2018 to May 2021, and an international trade 
economist at EPI in the 1990's.
    From 1997 to 2017, Deputy Undersecretary Lee worked at the AFL-CIO, 
a voluntary federation of 56 national and international labor unions 
that represent 12.5 million working men and women. At the AFL-CIO, she 
served as deputy chief of staff, policy director, and chief 
international economist.
    Ms. Lee has served on the State Department Advisory Committee on 
International Economic Policy, the Export-Import Bank Advisory 
Committee, and on the boards of directors of the National Bureau of 
Economic Research, the congressional Progressive Caucus Center, the 
Center for International Policy, and the Coalition on Human Needs, 
among others. She served on the U.S.-China Economic and Security Review 
Commission from 2018 to 2020. In 2022, she was appointed to the 
Congressional-Executive Commission on China.
    Thea Lee holds a master's degree in economics from the University 
of Michigan at Ann Arbor and a bachelor's degree in economics cum laude 
from Smith College.

    Scott Nova, Executive Director, Worker Rights Consortium

    Scott Nova is Executive Director of the Worker Rights Consortium, 
an independent labor rights monitoring organization that has conducted 
investigations of working conditions in factories around the world, 
including in China, Vietnam, Myanmar, and other countries where severe 
restrictions on civil society pose special obstacles to labor rights 
inquiry.
    Mr. Nova is a leading expert on the methodological aspects of labor 
rights investigation and on the practices and performance of corporate 
social auditors. He has written and spoken widely on the intersection 
of international commerce and worker rights.

    Adrian Zenz, Senior Fellow and Director in China Studies, Victims 
of Communism Memorial Foundation

    Dr. Adrian Zenz is Director in China Studies at the Victims of 
Communism Memorial Foundation, Washington, DC. His research focus is on 
China's ethnic policy, Beijing's campaign of mass internment, 
securitization and forced labor in the Xinjiang Uyghur Autonomous 
Region, public recruitment and coercive poverty alleviation in Tibet 
and Xinjiang, and China's domestic security budgets.
    Dr. Zenz is the author of `Tibetanness' Under Threat. He has played 
a leading role in the analysis of leaked Chinese government documents, 
including the ``China Cables,'' the ``Karakax List,'' the ``Xinjiang 
Papers,'' and the ``Xinjiang Police Files.''

    Jim Wormington, Senior Researcher and Advocate on Corporate 
Accountability, Human Rights Watch

    Jim Wormington is a senior researcher and advocate in the Economic 
Justice and Rights Division at Human Rights Watch, where he works on 
extractive industries, supply chains, and other issues related to 
corporate accountability. He was previously a researcher in Human 
Rights Watch's Africa Division, covering human rights issues in West 
Africa. He is an English-trained barrister, a past member of QEB Hollis 
Whiteman Chambers, and was educated at Cambridge University (MA) and 
New York University School of Law (LLM). He recently co-authored the 
report, ``Asleep at the Wheel: Car Companies' Complicity in Forced 
Labor in China.''